At a parliamentary hearing on Wednesday (16 September), PIMFA raised issues surrounding the ever-rising FSCS levy and also suggested the burden of pension scams on the lifeboat scheme could result in good advisers leaving the market.
Speaking at a Work and Pensions Committee hearing on Wednesday morning (16 September), PIMFA director of policy and government relations Tim Fassam told MPs pension fraud and scams could lead to “good, high-quality advisers” leaving the market.
Fassam pointed out pension scams and fraud were now falling onto the shoulders of the Financial Services Compensation Scheme (FSCS) where any part of the chain contained a regulated activity.
He said this in part was leading to rampant FSCS levy increases that would lead to advisers exiting the market.
He added: “Obviously it’s incredibly important consumers are compensated where they’ve had a bad experience … but the increases are out of control and suggest a serious problem with the system.”
Fassam was giving evidence in parliament on protecting pension savers, pension freedoms and scams.
The director on multiple occasions brought attention to the ever-increasing financial burden placed on advisers by the FSCS levy.
He continued: “It has been PIMFA’s view for some considerable time that the standard of supervision carried out in this sector is inadequate and has led to significant market distortion. Unless this is addressed, compensation costs will continue to rise, as will levy payments to the FSCS by our members.
“It is our view that the FCA’s regulatory approach currently incentivises firms to deliberately transfer risk onto the FSCS and continue trading, while the practice of ‘phoenixing’ remains far too prevalent.
“These two issues, combined with the fact that the calculation of the levy is homogenous and takes no account of the risk any given firm poses to the FSCS, has led to an unsustainable situation of increasing unaffordability and decreasing trust across our profession. While it is welcome that the FCA has recently recognised issues with the construction of the levy, questions remain about the reasons it continues to rise.”
Bow and arrow versus bazooka
The committee hearing also focused on pension scams and how to protect consumers from them.
Fassam said some PIMFA member firms struggled with fraudulent or inaccurate searches appearing on search engines ahead of them, and suggested the Financial Conduct Authority had the same issue.
Also at the committee hearing was Transparency Task Force founder Andy Agathangelou, who questioned what happens when evidence of pension scams is provided to the regulator.
He said: “What proportion of them were taken down? And more importantly, of the ones that were taken down, how many led to action from the regulator or other enforcement agencies to take away the permissions, to take the operators out of business? Only taking their advert off the internet is the first step, how many are simply able to put up another advert?”
He continued: “Frankly we are so frustrated because it’s like we collectively – the pensions industry, the regulators, the enforcement agencies – it’s like we’re using bows and arrows when the opposition has bazookas.”