- Devil is in the details for thousands of workers now faced with life changing financial decisions.
- But is some of the reporting of events verging on the hysterical
- Some bad apples – but ‘proper’ advice firms could head for the hills
In the run up to Christmas many thousands of British Steel workers are faced with enormous financial decisions which will have a major impact on their futures.
One of the biggest issues emerging from the situation, which many of these workers now find themselves in, is whether to transfer out of their final salary\defined benefit (DB) scheme….or to stay put in a scheme which many experts believe is destined to underperform.
My firm, The Pension Review Service (PRS), has fielded hundreds of calls from retired members, who we have guided through their options or directed towards the scheme helpline.
Did we receive any form of remuneration for this service? No we did not. Are we potentially liable for the advice/guidance that we have given? Yes we are. So why have we helped in this way?
As a successful firm I believe that we should “give something back” to the community and also that the scheme – and TATA Steel – have let their members down terribly.
PRS is based in a small town in the north-east of England, which, back in the day was a manufacturing, mining and steel town. I think my Dad, part of the fabric of this tight knit community, would have expected me to help.
Does all of the high profile publicity help? No, in my view it just creates confusion and spreads doubt.
Transferring from a final salary or defined benefit pension scheme has always been a contentious issue. We had the mis-selling scandal of the early 90’s and many commentators hark back to that period.
So what is different today?
Prior to 2015 we saw very little activity in the transfer market. In the overwhelming majority of cases we reviewed, we advised the client to remain in the scheme. There were some exceptions of course, individuals in poor health, single people (occasionally but not always) and those looking to use their pension funds to further the interests of their business either by borrowing from their pension scheme or buying premises (my own office is an asset of my pension fund, for example).
With the advent of so-called pensions’ freedoms, the ability to pass on (crystallised) pension funds to the next generation and the ability for the individual to choose how much they withdraw from their schemes was a genuine innovation.
This is surely a very attractive proposition given past restrictions, and individuals started to look at their options. British Steel Pension members included.
Initially we observed an increase in enquiries, some of these became clients of our firm but many we advised to remain with their scheme. Why? Because the numbers didn’t add up. Then we had the Brexit scenario, followed by an interest rate reduction by the Bank of England.
The result was that transfer values soared. It was not unusual to see cash equivalent transfer values (CETVs) representing 40+ times the pension on offer for the scheme. This coupled with the new inheritability of the scheme is very attractive and potentially life changing.
Throughout this period we have seen some firms (blue chip companies) openly incentivise their members to transfer whilst others are incentivising by pushing the transfer values higher.
As more workers carefully examine their transfer options, the requisite expertise in this area has become more important than ever.
Firms – like PRS – need to have Pension Transfer Permissions granted by the FCA to give correct advice in this area.
These permissions are hard won, advisers need to have specialist qualifications and satisfy the regulator that they are experienced in this area before granting permissions to firms. So you can have the qualification but not the permissions if you cannot demonstrate competence and experience.
Let’s fast forward to today’s situation in Port Talbot, home to many steel workers now faced with the final salary transfer dilemma.
There has been much reporting on this issue – the tone of some areas of the reporting has, in my view, bordered on the hysterical.
While it has emerged that some members of the financial advice community had the interests of their own company’s bank balance at heart, rather than the workers they are supposed to be advising, the upshot is that issues are being confused- and people who are not qualified to comment are being listened to.
There now appears to be a trial by social media being conducted.
Some apparent final salary transfer ‘experts’ recently visited Port Talbot and concluded that (pretty much) all of the advice that had been given was poor.
As far as PRS can establish, these ‘experts’ spoke to only a handful of people to arrive at this conclusion. They criticised the use of mainstream companies like Prudential, Royal London and Zurich. They warned everyone who would listen about visiting advisers from other parts of the country, labelling them wolves/vultures/sharks/criminals and such like.
This, without knowing anything about these firms, their processes or actually being qualified to comment.
They have claimed credit (publicly) for whistleblowing on Celtic Wealth Ltd and Active Wealth (UK) Ltd and have then effectively subjected the proprietors of these firms to trial by social media, claiming evidence of poor advice, the use of poor quality fund managers and exorbitant fees.
Some of this I am sure they have evidence for but I suspect most of it they do not. In any event the proper place for any evidence is with the FCA and not Twitter. The really interesting thing is that these self-appointed experts do not appear to be qualified to comment.
Despite this they have systematically attempted to disrupt the advice market and bring the advice process into disrepute.
Constant sniping at the “quality” of advice, the advice process and the cost of advice has recruited several high profile journalists to their camp.
They have also recently begun to organise counselling/guidance sessions for members of the British Steel scheme. Laudable you might think, but others think a recipe for disaster. Why?
Any firms offering a similar process have been slated via social media and the more mainstream press, so double standards on one hand and creating confusion and doubt on the other.
These ‘experts’ have announced that no commercial activity will take place on the day but meetings can be organised on the back of the initial consultation. Is that not a marketing or PR activity and therefore commercial?
Ultimately advice firms can sign up to help at their discretion and then be acclaimed as “good” firms. As regulated individuals whatever they say will be taken as advice and ultimately they will be responsible for any consequences, intended or otherwise. However what about the call to action for those not authorised but experienced?
The sentiment is a good one however these people are in my view well-meaning busybodies. They cannot tell people which option to choose – that is advice.
For all taking part, unless they are qualified and have the permission of the firm that they represent, they cannot comment on the advice of a Pension Transfer Specialist. The best they can do is suggest the member re-visits the advising firm or takes a second opinion from another qualified individual.
I am certain there will be some stories that will cause shock and outrage, but do not forget the individual receiving the advice has a responsibility to ensure that they understand it. If they do not they should say so and not proceed unless everything is clear to them.
What happens next?
Some members had already transferred from the scheme before the huge hike in transfer values. Well what of it? They have been advised based on their personal circumstances and must have had some motivation for seeking that advice. The rationale behind the advice must have been sound otherwise the advice would have been not to proceed. So it must be sour grapes.
Yes, unfortunately their friends and work colleagues have received transfer values way in excess of their own.
Anecdotally I was recently informed that there was “hell on” in Scunthorpe from the ex-members who did not receive such lucrative transfer values. Unfortunately, if any blame is to be apportioned it must be to the Trustees who will have known months in advance that they were changing the calculation basis of the scheme and that transfer values would soar.
They should have stopped all transfers well in advance, they must have known that it would cause much disquiet among the affected members.
Incidentally, up until the increase in transfer values our general advice to members was to remain with the scheme it was just too good.
Sadly the whole process from start to finish has been a complete mess. The Trustees have failed to communicate with their members in an appropriate way and the Unions have utterly failed in representing their members who are affected by these changes.
Advice firms have had their reputations tarnished by their involvement in the process. Most of these firms are well run and offer good, sound and practical advice.
They will guide members towards the option that is best for them and advise a Transfer where appropriate. Where could we do better? We should stop taking introduced work and cut out the Celtic Wealth’s of the world. Those individuals who require advice have a responsibility to find their own adviser who can help them.
As a firm our stance is, if we receive a referral and the introducing firm does not have a relationship with the customer we will retain them as clients once we have advised them on the transfer. Why? Not only is the initial transfer advice important but “what happens next”, the servicing, investment reviews and tax planning are of equal importance.
Everyone involved needs to remember that we have one regulator and it is not Twitter. Journalists have a responsibility not to sensationalise issues and get their facts right. Individuals who are not qualified to comment should not be encouraged to do so.
We have an advice gap in the UK and the public generally are suspicious of the advice and fund management industries. I acknowledge there are certain elements of both where we are right to be wary as there have been too many well documented pension scams and injustices.
And finally, please don’t confuse the issues.
There is much going on with the British Steel pension scheme and it serves no purpose at all to bring the advice business into disrepute.
There needs to be balance on both sides of the argument, something that is lacking as far as I can tell.
On a general note, if the hysteria continues legitimate advice firms will head for the hills (they have started to), Professional Indemnity Insurers will decline cover and you really will make it open season for pension scammers to make hay whilst the sun shines.