LEBC transfer market withdrawal and its impact on DB scheme ‘de-risking’

Kim Kaveh reports...

Pension scheme experts are split as to how much LEBC’s withdrawal from the defined benefit (DB) transfer advice market will impact scheme de-risking plans, and whether it will lead to further market dropouts.

It follows news revealed by RP’s sister publication Professional Adviser on Monday (2 September) that the national IFA firm had voluntarily agreed with the Financial Conduct Authority (FCA) to alter its regulatory permissions, meaning it would stop offering regulated advice on DB transfers.

Large numbers of DB pension schemes are currently undergoing de-risking plans. These can involve things like offering members pension transfers or restructuring member benefits, as in the case of pension increase exchanges (PIEs) and are all areas that may require them to provide or offer regulated financial advice to their members. Some schemes have decided to use large national IFA firms to help.

Hymans Robertson head of member options Ryan Markham said the news was likely to send “shockwaves through the [pensions] industry”.

Markham told RP’s sister title Professional Pensions the FCA is not just “showing its teeth, but really biting”, and going in on this area of DB transfers “hard and aggressively”.

He added: “I think they’re worried about the volumes of members leaving DB schemes, and really want to turn the taps off on that.”

He also pointed out the withdrawal will “absolutely impact de-risking”, as for example, there are pension scheme clients that have got LEBC in play at the moment, and they will now have to find someone else.

He said: “Every [pension scheme] adviser consultancy will have clients using LEBC, at various stages of the de-risking process, or they might be about to embark on such an exercise.

“The market is incredibly busy, and LEBC were the biggest player so it means schemes will be scrambling around trying to find a quality replacement quickly to keep these projects on track. But it’s going to make de-risking projects more challenging until the market evolves, and we get some new players coming in to ease the pain.”

He added: “If I were a trustee I’d be cautious about running an exercise now because other big players in the market could be impacted by this. I don’t believe the FCA would be looking into this [LEBC] in isolation.”

Furthermore, he noted that from a trustee perspective, they might want to see how the LEBC withdrawal plays out before “doing anything too drastic”.

Market impact

However, Willis Towers Watson retirement director Stewart Patterson believed there would be less of an impact on scheme de-risking.

He explained: “LEBC is a good sized firm and them dropping out does take away capacity from the market, but there is still enough capacity for schemes looking to run de-risking exercises.”

He also pointed out it has not yet been publicly confirmed exactly why LEBC withdrew from the market, and so far it is all “speculation”.

He added: “Realistically, this could happen to other firms but equally, other firms could come into the market.”

He explained: “I don’t think this will impact schemes at the moment, until something else comes out that sheds a light of what’s happened. But in the absence of that, things will carry on.

“It will be more of an impact on schemes partnered with LEBC, but overall the general market will continue. The FCA will not shut down the transfer market completely, it will be aiming to improve it and change it,” Patterson concluded.

The FCA is currently consulting on plans to ban contingent charging on DB transfers, following concerns that too many advisers have been delivering poor advice, much of it driven by conflicts of interest in the way they are remunerated.