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Pension Transfers – oh dear

It is difficult for me to know how to respond to the FCA’s consultation on doing a drains up review of all advice given to transfer from the British Steel Pension Scheme.

If an IFA asks my advice about pension transfers from defined benefit schemes, I almost invariably tell them to give up their permission to do such transactions. The rules on doing transfer value analysis and the use in this of the transfer value comparator are too obscure and open to subjective interpretation. Consequently, the most neutral and professional  advisers run a serious risk of having their judgement second-guessed by the regulator or Financial Ombudsman Service.

Some British Steel transfers will turn out to have been in the customers’ best interests, notably for younger employees but an awfully large percentage will not be. I have very mixed feelings here. For firms whose transfers fall on the side of the angels, I worry that what will probably prove to be temporary drops in the stock markets will make their transactions look much worse than they are. As for everyone else, I think back to the pensions review of the late 1990s.

The review involved some of the best pensions people around trying to unjam the pension sales of people unworthy to share a staff pass with them. While this was going on, any attempts to talk about compliance and pension transfers was met with total disinterest.

The great pension review managers retired or left their companies. Some became maths teachers; others took less stressful jobs at professional bodies or became paraplanners. Corporate memory disappeared. Nobody listened to those who had reviewed the horror transactions of the 1990s or read the literature on the subject.

This happened for a reason. Too many firms saw the size of transfer values and thought that by charging a small percentage of funds under management, they could make a fortune. Some did this by taking a proportion of the transfer value as the fee for doing the transaction until the regulator banned that.

Many more have continued to do transfers so as to increase significantly the funds on whose investment they can advice. They are taking their modest percent of that amount every year.

So, here we go again…..

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