The effectiveness of the FCA in dealing with pension transfers, especially overseas, has been called into question on a number of occasions.
While the FCA can act when things are going wrong, PI insurers arguably have a bigger impact in that they can drive players out of the market even where they have done nothing wrong.
As with all insurance, it boils down to risk.
The role of all insurers is to put a price on how hazardous something could be – whether it’s a new driver or a company offering a service.
The current message from the UK’s professional indemnity insurers is, by all accounts, that DB transfers are out of their risk tolerances.
At the beginning of May, PI woes forced pension transfer specialist O&M Pension Advice to cease advising clients from 1 July after it ran into “unexpected difficulties” with its insurer.
International Adviser understands that adviser firms are largely being put into three groups when it comes to getting PI insurance for DB transfers:
- Firms that can get cover without interview but that have to do a lot of due diligence;
- Firms that will have to meet with the PI insurer to justify their processes; and,
- Firms that will be denied cover.
Those falling into the third category will either have to fall back on another part of their business, if there is one, or exit the market.
The introduction of the pension freedoms in April 2015 opened up a world of possibilities in the retirement space.
Sky high transfer values on DB schemes have seen a deluge of money transferred to various investments and retirement products, both domestically and overseas.
Some with more success than others.
Cue the UK regulator stepping in to manage the maelstrom and try to ensure that transfer firms are fully aware of their responsibilities and that clients understand the risks associated with moving their money.
Some firms have voluntarily stopped doing transfers, while others have had their permissions withdrawn.
Closing the barn doors after the horse has bolted is how some have seen the regulator’s attempts to manage the industry after it introduced the pension freedoms.
However, while the FCA can separate the wheat from the chaff, the approach of PI insurers is more likely to see good providers and advisers forced out of the market.
It begs the questions: how much freedom is left in the pensions freedoms?