With news that the FCA has been working on a joint strategy with the Pensions Regulator, as well as publishing new guidance with regards to pension transfers, it is hoped that this clarification and guidance should go some way in providing further clarification in light of the volume of transfer complaints the industry has received.
But what is on the horizon when it comes to the pension sector and in particular pension transfers. How long will these substantiated claims remain? And with new guidance and continual changes, does the pensions sector face more backlash in years to come?
It’s all about the transfer, or is it?
Everyone wants to protect their future, to make sure that when we retire, we retire with enough savings to continue to live the life we have worked hard for and that we have become accustomed too.
When it comes to pensions, people now have a choice, and like all big choices, these come with a big responsibility.
For example, the introduction of automatic enrolment has seen approximately 10 million new people into pension savings, while pension freedoms have provided people with a greater choice when it comes to how they should be investing their money.
But how do you know what the right choice for you is?
There are always two sides to every story (or in this case pension scheme), and it’s interesting to note that what is now considered to be “old school” defined pension schemes are decreasing in popularity, especially within the private sector. With individuals now having to take much more responsibility for their retirement planning as well as face much greater uncertainty about the future. This group is also more vulnerable to unbelievable inventive pension scammers, and the constant juggling and manipulation with tax relief do not help to support what this system is designed for – stability.
The biggest shakeup in the pensions sector of all time has to be the announcement of pension freedoms. Creating the most significant changes that the industry has ever seen.
Creating freedom from no longer being tied into schemes and investments which were considered to be poor value matched with high risk, pension transfers now see typically between £20-30 billion transferred out of defined benefit pension schemes annually, making the personal finance profession key to supporting consumers and ensuring all questions are answered thoroughly.
However, for all vast sums of pension savings are being transferred every year it is also noted that most transfers will be unsuitable for most people and that in all honesty keeping a defined benefit pension will most likely be in their best interests.
Could it be that the number of complaints regarding pension transfers has got us running scared? Possibly. But ultimately everyone needs the information that is most suited to them and their situation.
We should view pensions as a valuable asset. An asset that needs to be looked after and nurtured as the decisions you make about it will impact on your future plans.
However, the most significant impact, has been on how people have received, understood and retained information about their pension investments, and not just any information, the right information and guidance.
Key issues facing the sector
As with any sector, pensions come with multiple complexities in need of being unravelled. With the number of choices now available, pensions are now considered as something of a “risk” area, with greater risk for the consumer and a higher level of responsibility placed on professional financial advisors.
(With defined benefit schemes now included within pension reforms, we see the introduction of mandatory and regulated financial advice. Introduced to make sure that consumers are presented with more choice while also ensuring that they have protection against potential poorly made decisions.)
When it comes to talking about pension transfers, most regulators will start off promoting the guarantees of sticking with a defined benefit scheme. However, for some, the attractiveness of enhanced transfer values is too much, and advisors on these occasions cannot dismiss the possibility of what a potential transfer would mean.
There is now a lot of information about pensions, a lot. No longer are we limited in our choices when it comes to our pension decisions. No, nowadays we have much more choice about exactly where we invest our money, we can even hold multiple pensions, and we make decisions sooner about what we can and should be doing closer to retirement.
This last point is significant. As a nation, we are living longer, and as such, we need to think ahead and think of our pensions possibly differently. Considering things like paying for care, looking at phasing retirement and even looking at using part of the value of our homes to help fund retirement plans.
It is all of these questions and decisions combined that make getting the right advice and guidance crucial.
Unfortunately, within the sector, there is a high volume of cold callers and scammers, enticing pension savers into transferring their pension savings. The FCA and The Pensions Advisory Service are aware of such scams, and as an industry, we are working hard on helping to eradicate the number of people who fall victim to these tricks.
Remember, “if something seems too good to be true, then it probably is.”
Complaints and Pensions
The number of complaints received regarding pensions and in particular pension transfers has increased dramatically over the years, with compensation being paid back to consumers at an all-time high.
To avoid being caught up in confusing and misleading situations it comes down to one vital point, receiving and understanding the right information and communications.
Seeking professional advice from people who are trained, experienced and remain independent from the situation is crucial.
The Personal Finance Society, in particular, has set up a Pensions Advice Taskforce to help develop a code of conduct for financial advisors. A code that is to help set a standard that establishes good practice beyond what is the minimum regulatory requirement. Because ultimately the majority of complaints are due to consumers receiving poor and misinformed information, mixed with a lack of understanding about the customer and their situation, so any further protection for advisors as well as consumers is welcome in the industry.
There is still a vast volume of complaints received from consumers who have moved from defined benefit schemes to defined contribution schemes (and sometimes vice versa), with the average PPI complaint being less than £3,000.
This is a much lesser figure; however, then what the compensation is when compared to a transfer complaint, which in some cases can be up to 6 figures!
Advisors are also facing further issues, with hikes in premiums in professional indemnity insurance, with insurers fearing the worst!
Every professional involved in the pension sector welcomes the additional protection and security offered through codes of conduct and further FCA guidance and regulation. Making sure that there are only well-governed schemes, run by experienced professionals, ultimately improving the advice people receive about their pensions and pension transfers.
As a sector, we need to pull together. Being vigilant when it comes to unsuitable and inappropriate advice being provided by the minority and making sure that it doesn’t have a negative impact on the consumer.
Pensions to pension transfers can be a success if managed right and managed by the right team of professional advisors.
Money and Me Claims
At Money and Me Claims all of our advisors are on hand to offer reassurance and demonstrate the highest standards of understanding when it comes to helping our customers.
If you would be interested in talking to one of the longest-serving financial claims company in the UK and you’re looking for further information about how we can help you with any potential pension transfer claims, contact us today, we’re happy to help.