The number of clients looking to transfer their defined benefit (DB) pension plan has grown exponentially since the introduction of pension freedoms in 2015.
According to the Financial Conduct Authority, between April 2015 and September 2018 over 230,000 pension scheme members have sought advice, with an average transfer value of £350,000 ($457,447, €413,058).
But what role do trustees have in this context?
A question that is pertinent, given the case of a single mother taking her pension trustee, FNB International, to court in Guernsey over the loss of her two DB schemes.
Mutual insurer Royal London and pensions law firm Eversheds Sutherland have analysed of the situation, and determined that trustees must have an active role in some way, shape or form.
“Whilst the report does not advocate a single course of action, it does stress to trustees that ‘doing nothing’ is not a risk-free option,” Royal London said.
Several points of action
The study provides a roadmap, touching on every single level of engagement trustees can have with their scheme members, ranging from minimal involvement to appointing a nominated financial advisory firm, or firms if needed, for members to use.
It also presents case studies, such as the pension scheme of supermarket chain Tesco, where the company selected two IFA firms that members could engage with for a fixed fee and receive pension transfer advice.
Steve Webb, director of policy at Royal London, said: “Despite all of the controversy around this issue, it remains the case that transferring out of a defined benefit pension will be the right answer for some people in some circumstances.
“There is much to be said for trustees helping members to access high quality, affordable financial advice to help them to decide if such a transfer is right for them”.
Avoid a British Steel 2.0
Francois Barker, partner and head of pensions at Eversheds Sutherland, said: “When it comes to trustees and pension transfers, there is no ‘risk-free’ response.
“The British Steel case demonstrates the reputational damage which can be done when members are left to find their own sources of advice.
“Trustees who engage with the issue in a properly governed way may well be less exposed than those who do nothing at all.
“Whilst there is no one-size-fits-all solution to this dilemma, we hope that this guide will help trustees to judge the right level of involvement in supporting members who may be considering a transfer.”
Ruston Smith, chair of the Tesco pension scheme, said: “In the last few years there have been some examples where groups of employees or members haven’t had the right outcomes from the independent financial advice they received.
“There are therefore real benefits of appointing an IFA panel to support members in getting the advice they need and to reduce or remove the likelihood of scams.
“Ongoing independent due diligence of the IFA firms that are appointed is clear best practice governance to make sure that they ‘remain’ appropriate and to protect and support members.”
