New FSA review of pension transfers

Advisers writing pension transfer business face a focused FSA review next year, Corporate Adviser Summit delegates heard last month.

The regulator has been monitoring data from advisers and providers active in the pensions transfer sector and will be initiating a major review in the first quarter of 2008, said Simon Collins, chairman of the Association of Compliance Professionals.

Collins said the regulator is likely to target its energies on smaller firms conducting transfer business but will also be looking at those providers that have accepted large volumes of business with high critical yields without question.

The review will cover many of the issues unveiled by the Alexanders case last year, when the Swindon firm was the subject of enforcement action after it moved 650 members of the final salary scheme of a manufacturing company into the defined contribution scheme of a related company. Transfers went ahead where critical yields were as high as 20 per cent, in some cases where employees had only two years to retirement.

Of the 5,000 intermediaries that are authorised to advise on pensions, 2,500 have authority to advise on opt-outs. Of these, 2,400 are in small firms.

Collins said: “The FSA has been monitoring data from providers and advisers to identify what has been sold by whom. The regulator will be challenging small firms on this and also providers who have accepted the business without due diligence. In my view the industry needs to hold up its hands and say it cannot do this business. The reputational risk is huge.”

Nick Burns, group managing director of PIFC Consulting said: “Commission can be high for intermediaries here. I would upskill the qualifications needed to do this, making chartered status the necessary requirement to do defined benefit transfers. There should also be a common fee structure based on hours spent to make this business transparent.”

Robin Ellison, senior partner at law firm Pinsent Masons said: “Since the Revenue made lump sums less valuable this business is less attractive. There was a recent report of a firm that carried out a transfer exercise and reduced its liability from £5m to £4.8m. But what was the cost of achieving that?”

Richard Roper, head of client services at JLT Benefit Solutions said: “We did an exercise where 90 per cent of employees were advised to stay put but a significant number said they wanted to transfer anyway. It later transpired their boss had been telephoning them telling them they should switch.”