The financial services industry could see the emergence of a defined benefit (DB) pension transfer mis-selling scandal in 2020, the technical director at Intelligent Pensions has warned.
Fiona Tait said during a panel at the Personal Finance Society’s annual conference in Birmingham: “There certainly is scope for one, I would say. I think it could start emerging pretty soon.
“Since the end of the PPI [payment protection insurance] claims, chasers will be looking for something else to do. It would be quite naive to think we wouldn’t be on their radar.
“It’s not to say I think everybody in this audience [advisers] has something to worry about.
“As far as advisers are concerned, we’re in a bit of a limbo as what we’re still kind of waiting for is to get the feedback from the Financial Conduct Authority (FCA), so I wouldn’t rush into making any changes just yet.
“But yeah, I think next year could be the year.”
Previous mishaps
The DB pension transfer market has been through a tough time over the last few years.
In December 2017, British Steel Pension Scheme members were asked to shift their DB pensions to another plan; stay in the fund, which was moved to the Pension Protection Fund as British Steel was closing its existing scheme; or transfer out.
Some of those opting for the last option became entangled in a scandal that saw a handful of financial advisers encourage steelworkers to transfer their retirement pots to other investments, which resulted in people investing their money in esoteric, high-risk overseas funds.
The Financial Services Compensation Scheme (FSCS) has since received 77 claims about defunct firm Active Wealth and paid compensation totalling £1.8m ($2.3m, €2.1m) to 61 individuals; in addition to complaints about others.
Not just the ‘dodgy’ firms
Rory Percival, regulator-turned-pension consultant, said during the panel debate attended by International Adviser: “There already is and has been a mis-selling scandal. It’s a case of how much and where we are now or what we can do going forward to reduce the impact.
“Clearly there is an issue. I think the point I have been making quite a bit recently, which is not really getting the traction with the sector, is most people in the industry think this is an issue that’s isolated among a small number of ‘dodgy’ firms.
“It isn’t. It’s quite clear to me that the findings of the FCA flag up very clearly this is [also] perfectly decent firms just not doing their job well enough.
“So actually, the people in the room might be thinking, the problem around mis-selling is not me.
“I would suggest actually, you do really need to look at what you’re doing yourself, because this is more widespread than people think. “
‘Priority over wants’
In June 2019, the UK regulator said it was disappointed with the number of advice firms recommending people to transfer out of DB pension schemes.
Percival added: “I would say there’s a fundamental difference of opinion of what unsuitable advice looks like between the FCA and the market.
“We need to put priority over wants.
“The whole premise for a lot of clients going to see advisers is: I want to do this, I want to have my hands on that pot, or I want to be able to access it to spruce up the kitchen.
“You can’t just say ‘yes, if that’s what you want, we can do the transfer’.
“Also, the mindset shouldn’t be: how can we show this is the right thing to do for the client?
“The starting point is: how can we find some other way of meeting these other client needs without doing the transfer? So effectively, the transfer becomes the last resort.
“But if there’s no other way of meeting the client’s objectives, then you can sell the transfer.”
