A pension transfer – a transfer of funds from an occupational pension scheme to another form of retirement savings arrangement – is undoubtedly one of the higher risk areas that a financial advisory firm can get involved with.
A recent freedom of information request reveals that 54 firms are currently prevented from carrying out pension transfers, after entering into what are known as ‘voluntary requirements’ with the Financial Conduct Authority (FCA). 16 restrictions of this type were imposed during 2016.
Firms who have been subject to such a restriction include Holborn Assets, whose UK headquarters are in South Manchester. Holborn was required to cease all pension transfer business that was introduced by an overseas adviser until a skilled person review of the firm’s pension advice process was completed. The firm was also required to conduct a historic business review of all its previous pension transfer business, and while pension transfer business referred to Holborn by UK advisers can continue, these transactions must also be checked by a skilled person.
Although an agreement with the FCA to cease carrying out a particular form of business can be described as a ‘voluntary requirement’, breaching the order can have serious consequences. In January this year, Gloucestershire-based advisory firm Bank House Investment Management carried out some 78 transfers that were deemed to be in breach of its voluntary requirement, and was duly ordered to cease all regulated activity.
The FCA had concerns over Bank House’s advice for a number of clients to switch their pension savings into Self Invested Personal Pensions (SIPPs) with high-risk underlying investments. The firm’s voluntary requirement prevented them from switching or transferring any pension plan to a SIPP until it had provided independent verification to the FCA that “a robust and compliant advisory process” was in place for this type of advice. It was also required to have all SIPP switches independently checked.
Clients wishing to transfer £30,000 or more from a final salary (defined benefit) pension scheme are legally required to receive financial advice before switching to an alternative pension arrangement.
Any client who approaches a financial adviser seeking advice on whether to remain in their existing pension arrangement must be treated fairly. The FCA asks firms to carry out a transfer analysis, which must carefully consider: the likely benefits under the existing scheme and any proposed new scheme, the risks of each option and the costs and charges to be paid by the client.
To advise on pension transfers, firms require special permission from the FCA. If within these firms, advice on a transfer is given by an individual without a specialist pension qualification (such as G60 or AF3), then their advice must be checked by someone who is a pension specialist.
The Financial Ombudsman Service (FOS) has recently highlighted another important issue that advisory firms must consider when considering transfers from final salary schemes. Some schemes offer a facility known as ‘partial transfer’, where the client can keep some of their guaranteed income, whilst cashing in the remainder of their fund. The FOS says it has upheld a number of complaints from clients who were not advised to make use of this facility, when it may have been in their best interests to do so.
An FOS spokesperson said:
“We’d look at whether an adviser had considered any key features of the product, for example if a partial transfer was possible or not and whether it was suitable for the consumer to give up safeguarded benefits in the circumstances.”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.