Defined Benefits – Pension Advice

The FCA & Adviser Insurance Position

In early 2018 the Financial Conduct Authority stated that they believe that in most client’s case then the assumption should be that retaining their Defined Benefit scheme with guarantees, or those with “safeguarded” benefits, is the best advice solution.

The FCA believes that any starting point should be : –

The client outcome at retirement,

The objectives of the client overall, and

The DB schemes potential in meeting those objectives or assisting in meeting the outcomes.

The FCA does not like the separation of advice of the ‘transfer’ from the transfer itself, including any ‘investment’ in the new pension, as they believe that this results in poor outcomes for clients.

In practice, “signing off” of Defined Benefit pension transfers has led to numerous claims against adviser firms, which has led to the largest Public Indemnity (PI) insurer going into liquidation and also scrutiny by MPs at parliament throughout 2018, 2019 and 2020.

The FCA has also changed the amount of compensation available through the FOS and implemented full reviews of firms in 2019 and 2020. This has led to some adviser firms now being refused PI cover and going out of business, along with restrictions in the cover where it is provided.

Defined Benefit Transfer UK SIPP Advice Brochure

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Our Position

Aisa Financial Planning Ltd has the necessary FCA permissions to provide advice to clients with Defined Benefits (final salary) schemes and those with ‘safeguarded’ benefits in excess of £30,000.

We follow FCA Best Practice and always strive to achieve positive outcomes for all the clients we work with. We have always believed that a ‘Sign Off’ is not in a client’s best interests and as such, we do not provide ‘Sign Offs’. We are a Chartered Financial Planning firm and we see our role as assisting clients to be in the best position they can be through sound advice and long term planning.

To achieve this, we work with our clients and guide them where they require our knowledge and expertise.

What We Will Do

We follow FCA Best Practice and always strive to achieve positive outcomes for all the clients we work with. We offer a fee based Abridged Advice as a starting point so you will not waste your money;

After Abridged Advice, we can review all your pensions and any Defined Benefit pension for a fixed fee and provide a comprehensive Pension Report with an analysis, based on your unique circumstances;

After a meeting with a pension transfer specialist, we will provide a personal recommendation;

If the advice is to transfer, and you decide to follow our advice, we provide a Final Recommendation Report and arrange for the transfer;

Optional: We can then provide a tailored investment report, with the recommended funds;

Optional: We can provide bespoke ongoing investment advice up to and beyond retirement.

What We Will Not Do

We will not do a ‘Sign Off’ for a client;

We will not ‘Sign Off’ reports for other Adviser firms. We require direct contact with the client at all times;

We will not recommend any transfer where the client then wishes to invest the funds themselves * (see below)

We will not recommend any transfer where the client appoints a third party to do the transfer or investments without our oversight * (see below)

* If the recommendation within the Project Report is not to transfer, Aisa Financial Planning will provide no further advice on the matter and will not be party to any subsequent transfer, although we can continue to provide advice on other areas that may be of assistance in meeting your objectives and goals.

Further Background & Information

The Defined Benefit Pension advice market is tightening up rapidly, after concerns about the ongoing provision of Professional Indemnity Insurance (PI) cover for adviser firms after experiences of poor pension transfer advice to British Steel Pension members and overseas transfers.

Many transfers are being found to be unsuitable and the Financial Ombudsman has already taken on large numbers of complaints that, if upheld, will most likely all have to be covered by the PI insurers.

The largest PI insurer went into liquidation in 2019 as a result of claims. Many others have pulled out of the market leaving very few options.

This has led to a dramatic ‘tightening’ in the PI market, with insurers raising premiums substantially or not providing cover at all, even if a firm has previously had no complaints or claims.

The Personal Finance Society, our professional body has raised concerns about the effect the lack of PI cover will have for those providing advice to members of DB schemes. A prime example is here. The owner of this firm is a compliance expert, without any previous claims.

If PI cover is not available, then the adviser firm can no longer carry on providing advice on pension transfers. If they do, they are operating illegally.

Our Minimum Engagement Level & Fees

In the light of escalating PI premiums, (ours increased 3-fold in 2019) the risk to ourselves and concerns over the volume of transfers being advised upon, we have reviewed our service.

We will only provide advice on Defined Benefit or Final Salary transfers (DB transfers) if we:

Have an overall view of client objectives, not just the DB pension transfer aspect;

Have completed Abridged Advice at the cost of £500 (VAT may apply);

After this, if applicable, we have completed a full review and recommendation;

If appropriate where we have recommended it, implement any transfer.

We believe that our service is only suitable to those people with serious intentions and with funds of at least £250,000. Due to new rules on 1st October 2020 we have a non-contingent fixed fee for providing our service which, due to costs and risk of this business, is £6,000; this has to be paid irrespective of whether a transfer proceeds or not. This is a regulatory FCA rule which bans contingent charges.

Please note that our PII and the FCA are insisting that we ensure that any initial investments are in line with the risk spectrum of the client. Whilst our investment services are optional, we would expect Aisa to be involved in the investment recommendations after implementation, and we will explain any ongoing fee as we go through the process.*

*This does not affect clients statutory rights with regard to engagement. It does not stop the investor from disengaging from Aisa Financial Planning and choosing another investment adviser in the future.

FCA explains defined benefit transfer process FCA Video ›

Conclusion

We believe that our service is what the FCA is insisting on in their latest review paper and that it meets our PI requirements.

As a professional company that cares about our clients, we believe this will enable us to continue to offer this valuable service. If you, or your colleagues, are interested in a professional service that has PII cover and future protection from a reputable company then, we would be pleased to assist you.

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