Frank Field's Work and Pensions Select Committee is intending to review the impartiality of defined benefit pension transfer advice. What could this mean for the advisory industry and its PI insurers?
Defined benefit pension transfers have been a hot topic for some time now, keeping both the Regulator and lawyers busy. Recent news about political interest indicates that this is not likely to change.
In brief, the Work and Pensions Select Committee intends to look at whether people being advised to transfer from DB schemes are actually receiving impartial advice. There is always the potential for conflict when an advisor has been appointed by a company looking to reduce its liabilities by hiving off pensions. However, these concerns have been well known in the advisory community for a long time and it would be surprising if pension specialists were not aware of the tightrope that needs to be walked.
The potential issue here is that pension freedoms (coupled with the ever present desire of companies to reduce liabilities) means that we are seeing an increased demand for DB transfer advice, a demand that the industry appears willing to meet:
As this article demonstrates, the FCA's own figures show that an additional 600 firms received permission to advise on DB pension transfers to the 30 April 2017, so there seems to be no shortage of advisors keen to provide advice in this potentially lucrative area.
Hopefully the WPSC will also prompt clarification about the type of impartiality or independence required. The 'appropriate independent advice' required for a DB transfer under pensions law ought not to mean "independent" in the RDR sense. If it does (contrary to COBS 6.2A(2)), EBCs advising the employer won't also be able to advise the members.
The key question is whether this raises concerns for advisors and their PI insurers? Given the attention that DB transfers have received from the Regulator in recent years – and the intensified focus of the FCA's current multi-firm review - it seems fair to assume that most advisors are fully aware of the risks and that poor practice has largely been identified and rectified. However, the simple fact that volumes of transfers are likely to increase does (on a basic level) indicate that there could be scope for increased claims.
As always this is an interesting area (at least for me) and these are interesting times. We await the Work and Pensions Select Committee's findings with baited breath!