At a recent Pension Trustee conference, delegates asked a colleague discussing pension transfers questions about responsibility for the consequences of pension scheme member choices.
Specifically, who is responsible if a member transfers benefits and is subsequently found to have been scammed? Also, who is responsible when an adviser has been appointed to provide regulated financial advice to scheme members on retirement matters, but the member is unhappy with the advice?
Both are good questions and are highly relevant given the continued focus on pension scams and pension transfers.
The answers to both questions are similar but not necessarily cut and dried. Ultimately, pension scheme members bear the bulk of the responsibility for their decision making, but there is no doubt that they need an ever increasing level of support from Trustees; some of which are set out in regulation and others are covered in one of a number of excellent guides and voluntary codes within the pension industry.
The Pension Scams Industry Group (PSIG) code of good practice – ‘Combating Pension Scams’, is based on 3 key principles;
1/ To raise awareness of pension scams for members and beneficiaries
2/ To have robust processes for assessing whether a scheme may be operating as part of a scam
3/ To be aware of the known current scam strategies.
The Pension Transfer Gold Standard (PTGS), created by the Pension Advice Taskforce, is for consumers, Trustees and advisers in the DB transfer market. It takes the Financial Conduct Authority’s (FCA) position as a starting point that a pension transfer is not suitable and sets out practical steps and examples of good practice to deliver better member outcomes. It’s expected to become best practice and something Trustees should look for that advisers who offer pension transfer advice, sign up to the PTGS and agree to evidence how they are meeting the standards.
Like PSIG, a key principle relates to educating members before they make any missteps atretirement. Something that as workplace financial education provider, we wholeheartedly agree with.
Specifically for Trustees, there are regulatory and disclosure responsibilities to discharge when dealing with member requests – whether that is for information about benefits or for a pension transfer request. However, these don’t always ensure that a member is protected against the myriad of risks faced when accessing their benefits.
But in general, if we assume Trustees have carried out the required checks about the validity of the receiving scheme, have sent the necessary scam warnings, and where a transfer relates to benefits in excess of £30k have checked the member has taken regulated financial advice from a suitably qualified adviser, then that should be job done. The Trustee should then be able to defend any subsequent complaint regarding a scam.
However, it is important to get the process right, otherwise the above does not stand.
An example of this is the Pension Ombudsman finding for Mr N against the Northumbria Police Authority in 2018. The Ombudsman found the Authority failed to carry out the appropriate checks on the receiving scheme and provide warnings to the member on the risks of a pension transfer scam, despite the member having taken advice from a regulated financial adviser.
In 2018, in the case of Mrs R, the Pension Ombudsman found against the Trustees of a defined benefit (DB) scheme for not providing the relevant information to ensure the maximum amount of widow’s benefits from the scheme. This was not a process issue as such, rather an informational one, but the end result was the same; a member made a poor decision that would have had lifelong and detrimental financial consequences because they were not given the right information to make an informed decision.
However, research carried out by WEALTH at work and the PMI earlier in 2019 highlights that Trustees are concerned about members not making the right decisions. In particular, Trustee concerns include worries over members being ill-equipped to deal with a range of issues faced when accessing benefits and that costly mistakes could be made including excess tax being paid, falling prey to scammers, or falling foul of the dangers inherent in DB transfers.
Whilst the regulations don’t and can’t guarantee a member will always avoid suffering financial loss, there is a duty of care and a regulatory requirement to have processes in place to help members and employees understand how to protect themselves and make informed choices. The voluntary codes I mentioned earlier are a good start but ultimately we need Trustees to facilitate access to financial education and guidance at-retirement, as members are more likely to make informed choices if they do, including being able to decide if they need further support such as regulated financial advice.
If this is done after a thorough due diligence process which includes sourcing a reputable firm and checking their regulatory record, speaking to other schemes or employers using their services, looking at member feedback and carrying out a site visit, Trustees should then feel confident that the responsibility for the guidance and regulated financial advice given to members, and the consequences of that, rest with the chosen provider and not the Trustee.
WEALTH at work