IFAs avoid pension switching after 'heavy' FSA crackdown

02 September 2010

Nervous advisers are recommending clients stick with their existing pension arrangements, even where there is good reason to transfer, because of the FSA’s “heavy-handed” crackdown on pension switching. A number of concerned IFAs say the regulator’s efforts to protect consumers from unsuitable pension switches have, in some cases, proved counter-productive. A thematic review by the FSA in 2008 found almost one in six pension switches had been missold. Follow-up work last year led to a £700,000 fine, plus an order to conduct a past business review, for RSM Tenon Financial Services, while ten other firms were asked to conduct legacy business assessments. But a number of IFAs have told Professional Adviser, IFAonline's print title, the FSA’s “heavy-handed” approach has left them worried to process even the most justifiable switches. David Curley, director at Spencer Hayes Financial Services, says: "What was pension planning is now retirement planning, and even that is moving quickly to 'flexible income in semi-retirement' planning. "Products such as SIPPs permit so much more flexibility, but the FSA has not caught up with this fact. So they are jumping on advisers for pension switching even when there are legitimate reasons for the switch. "Advisers will never be able to do the work for clients without fear of retribution." Another south-east based IFA, who asked to remain anonymous, agreed “one million per cent” some advisers avoid valid pension switching for fear of being chased by the FSA. “The regulator’s compliance crackdown has acted like a business prevention tool for IFAs,” he says. “If the switch is a simple process, you do it, but if it is not, because of compliance processes, you think ‘this is not worth it’.” Tom McPhail, head of pensions policy research at Hargreaves Lansdown, says pension switching remains a “grey area”. “It is always going to be difficult to pin this down,” he says. “But the FSA’s interest has focused advisers’ minds on pension switching, which is not necessarily a bad thing.” Others maintain the FSA rules are fair. Mike Jones, of consumer site MyCompanyPension.co.uk, says churning is still a very real threat to clients today. "A recent case I mediated on involved an IFA who transferred £50,000 from one pension provider to another for a 63-year-old who was two years away from drawing his pension. "The policyholder was at his wits end when, 18 months later, he only had £26,000, such was the downturn in this particular fund." An FSA spokesperson says: “We have given a lot of guidance recently on best practice for pension switches. “As well as a ‘Dear compliance officer’ letter, 18 regional road shows, numerous enforcement cases and a thematic review, we have also published a suitability template that provides firms with a resource to assist them in this area.” Published by IFAOnline