We’ve seen some difficult and complex cases over the last few years - British Steel, BHS, and more recently Carillion, which have clearly been challenging for everyone involved.
When a business fails, or finds itself in trouble, and the pension scheme is impacted, it’s a difficult time for everyone. It’s difficult for the trustees of the schemes and it’s particularly difficult for the members of these schemes, who find themselves faced with decisions that they’d rather not be making about their retirement plans.
It’s during these times that members need trustworthy information and advice to help them make those decisions about what they should do with their pension pot.
It’s so important that members are aware of what their options are and the consequences of those options so that the decisions they make are informed and in their best interest.
That’s why TPR is committed to strengthening its guidance to trustees as to how best to communicate with members who may want to transfer their pension savings.
It’s why we have joined up with the FCA to help ensure that quality advice is available for members when they need it, and that rogue advisers are not allowed to prey on them.
And it’s why TPR does appreciate the work that Al is doing with the CHIVE initiative - because it helps members understand their options and what the implications might be.
The case last year of unscrupulous advisers targeting Tata Steel workers in South Wales is thankfully rare, however the case did demonstrate the potential vulnerability of scheme members where the future of their pension scheme was uncertain.
What is TPR doing?
Unsuitable advice has particularly serious consequences for consumers transferring out of DB schemes. It can potentially result in lower retirement income and the risk of running out of money.
Generally speaking, we believe that transfers from DB to DC schemes are unlikely to be in the best interests of most members, although there are certain circumstances where they may be appropriate.
Our primary concern is that members requesting a Cash Equivalent Transfer Value have all the information they need to make an informed decision about what is in their best interests. That includes understanding the fees that are charged under any new pension arrangement as these can make a significant difference to the value of the fund.
So TPR is very alert to the vulnerability of members, and the challenges facing trustees and advisers.
Here are three things we are doing at TPR to help members:
1. We are joining up with other agencies, particularly the FCA, to support trustees
What’s clear is that no one organisation - not TPR, nor the FCA, nor the government, nor CHIVE - can fix things alone. That’s one reason why TPR is here to lend our support to the positive work CHIVE is doing.
We have long-standing, good working relationships with the FCA and TPAS, and recently we have intensified our joint work, and in particular with the FCA. You may have seen that last month we published a joint pensions strategy, which looks at the risks and challenges the pensions industry is facing over the next five to 10 years and our plans to combat the challenges.
One of the top risks we’ve identified is harm to members, and one of the key pieces of work we’ll be doing is a joint review of the consumer pensions journey. This includes a specific focus on improving member outcomes from DB transfers.
We remain particularly concerned about the delivery of advice for DB transfers, given that recent FCA supervisory work has found that a significant proportion of advice given is either unsuitable, or not clearly suitable. The FCA and TPR will take all necessary action, both jointly and independently, to improve outcomes for members and consumers in this area.
And we’ll be reviewing our guidance for trustees on transfers and the information and support given to members.
The FCA will be continuing to look at DB transfer advice and reviewing advice suitability.
We’ll be working on an information-sharing template for IFAs and schemes to use and a joint protocol for regulatory oversight and communications during significant DB events.
Another joint project between FCA and TPR was the Scams campaign in August, you’ll probably have heard the strapline: 'Don't let a scammer enjoy your retirement'. What was different about this campaign was that it chiefly targeted consumers, and in an effort to stop members feeling embarrassed or somehow responsible, it had a very obvious 'bad guy' in the adverts.
The campaign generated huge media coverage including front page of the Daily Mirror and pieces in the FT, the Guardian, Daily Mail, The Sun and the Daily Express, plus a 627% uplift in traffic to the ScamSmart website - the most popular page being the 'how to avoid pension scams.'
2. Letters to trustees of certain schemes
We are working closely with the FCA and The Pensions Advisory Service (TPAS) to provide a higher level of support to trustees and scheme members where there is uncertainty around the future of a DB pension scheme.
This includes providing letters for trustees to send members alerting them to the risks of transferring and giving practical information.
We are very aware that recent high profile cases combined with high transfer values and have increased the potential for more transfer requests. And we know from what happened in Port Talbot that some pension scheme members may be vulnerable to advice that is not in their best interests.
So when we see announcements or media coverage about a scheme or its sponsor that we believe may cause members to consider transferring their pension, our case teams will consider sending a letter to the scheme’s trustees.
The letter is a template, which is written jointly from TPR, the FCA and TPAS that trustees can provide to those members who have requested CETV quotations.
The letter highlights the importance of making a fully informed decision. It provides practical information, and is available to schemes that are experiencing an increase in members requesting these transfer figures.
The letter is designed to be issued by trustees to all members who request a CETV quotation. The goal is that accurate and timely information from trustees to members and their advisers, along with independent regulated financial advice, will help members to make informed decisions that suit their personal circumstances.
The letter urges members to be very careful if they are considering a transfer out of a defined benefit pension scheme and warns them that a different type of pension arrangement is unlikely to be in someone’s best interests.
It stresses they should get guidance or advice before making a decision. It points them towards The Pensions Advisory Service (TPAS) and tells them they should also take regulated financial advice from someone who is authorised to advise on pension transfers.
It reminds them that if their transfer value is £30,000 or more and they are seeking to transfer their benefits to a DC scheme, they are required by law to take advice from a regulated financial adviser.
It also suggests that they look closely into the scheme they’re thinking of transferring to and don’t be rushed into making a decision. Comparing the risks and benefits of DB and DC pensions is complex and needs to reflect their wider personal circumstances and attitude to risk.
3. Caroline Rookes’ report on BSPS / transfers
Thirdly we have the Caroline Rookes’ report which I’m sure you’ll have heard about. This was a recommendation by the Work and Pensions Select Committee that TPR commission an independent review into the communication that was made available to members of the British Steel pension schemes.
We commissioned Caroline, who is the former Chief Executive of the Money Advice Service. It’s important to note she is independent - she’s been conducting the review and will come to her own conclusions. The report will include a number of recommendations for TPR, the FCA, the PPF (Pension Protection Fund), and TPAS (The Pensions Advisory Service).
As you can see we have not been waiting for the report to come out before taking action on transfers. However, we will of course be taking more action on the recommendations. We look forward to seeing the report - it will test our view on how much more we should be doing, and how to focus efforts in future. It may even challenge how far we support trustees and where we may need to be more proactively involved in helping guide what good looks like; or be clearer about what our expectations are.
We will be publishing a response setting out what we intend to do with our partners to help members, particularly in restructuring situations like British Steel, to make better-informed decisions.
The report is progressing well and we can expect to see it shortly. It is specifically looking at the consultation period of October to December 2017, and it’s considering the timing of the member consultation period, given the May 2017 agreement in principle, the initial clearance for the RAA on 11 August and final approval on 11 September.
The review will also look at how warnings of potential sharp practice and scams or the fact of there being a third option to transfer out altogether were addressed in the communications.
Caroline has spoken with a wide range of stakeholders, including members, trustees, advisers, local MPs. She may have spoken with some of you here and if so, I’d like to thank you for your time in doing that. Caroline has gathered feedback from those who transferred into the new Pension Scheme or moved with the original scheme to the PPF. She also held focus groups with former steelworkers who transferred out into DC schemes.
I’ve outlined some of the things that TPR is doing - for trustees and members - around transfers, particularly when the issue of transfers has arisen primarily because of a sponsor in trouble.
But as I said - TPR’s actions alone aren’t enough to protect members and their benefits in this area. We appreciate and welcome the work that Al is doing with the CHIVE initiative. We believe the CHIVE effort will help members understand their options and the risks of transferring their scheme. More importantly we think it will help people fully understand the consequences of the choices they face.