PFS warns of post-lockdown pension transfer request ‘spike’

Jenna Brown reports

A potential surge in pension transfer requests as a result of the economic fallout from lockdown could see demand for advice rocket, putting increased pressure on the profession, the Personal Finance Society (PFS) has warned.

In a communication to members, chief executive Keith Richards said increased demand for advice on potential exits from defined benefit (DB) pension schemes must not result in a repeat of the British Steel scandal – where many workers were wrongly advised to transfer out of the final salary arrangement.

The British Steel saga has resulted in increased scrutiny of the transfer market by the regulator, with many firms losing transfer permissions and rising professional indemnity insurance (PII) bills for advisers.

Richards said: “I have been contacted by a number of members over the past two weeks alerting me to a potential spike in pension transfer requests. As we start to see the economic impact of lockdown on business and jobs, it is logical that the demand for financial advice is likely to increase significantly.

“Travel, hospitality and many parts of retail are some of the worst sectors affected and over the past few weeks. British Airways, for example, has had little option but to make significant redundancies. One adviser received four separate unsolicited requests for help on taking their CETV during the past fortnight. The adviser in question declined all four cases but pointed the consumers to the PFS and Maps adviser directories as well as Pension Wise for free guidance.”

Richards pointed to research which concluded a total of 6.5 million people would lose their jobs due to coronavirus.

“This and other significant employment issues stemming from the impact of Covid-19 could land in the wrong place if proactive guidance is not put in place, and we are therefore in communication with Financial Conduct Authority and The Pensions Regulator to support plans for both consumer and sector guidance.”

British Steel

Richards added that no-one wanted to see a “repeat” of the issues surrounding the British Steel Pension Scheme and said more proactive assistance for millions of affected people needed to be available as a matter of priority.

However, he said: “Equally we are now at the point where availability of mandated advice is significantly reduced, which could lead to further consumer stress and frustrations.”

The PFS has formally asked government to consider a state-backed temporary alternative to PII to allow the profession to better support the public.

“While the majority within the profession always do the right thing, the actions of a minority distort the picture as was seen with British Steel, where a minority saw the issues faced by British Steel workers as a commercial opportunity. The whole profession is subsequently feeling the financial impact through increased costs of PII and Financial Services Compensation Scheme, as well as reputational impact – we must not allow history to repeat itself.”

Richards said the FCA had confirmed it was working closely with TPR and Maps on a range of DB transfer matters, including gathering data from scheme trustees on rates of transfer enquiries.

“The profession has an increasingly important role to play, but the dynamics of the challenges people face underlines the need to remain alert and diligent in our interactions and support,” said Richards.