Helping your members make sensible pension decisions in the Covid-19 crisis

It’s safe to say that scammers are going to see Covid-19 as an opportunity to exploit people at a time when many people are feeling concerned about their personal finances.

Some financial advisors may also (perhaps unwittingly) take advantage of people’s fears about their long- term future and pension arrangements, as scheme sponsors’ share prices fall and funding levels deteriorate. So how can schemes protect their members?

Communicating with members

The Pensions Regulator published guidance for trustees, employers and administrators on 20 March to ask them to help protect members from scams and from making poor decisions at a vulnerable time. If a member asks about transferring their pension, the Regulator has said that trustees (presumably via their administrators) should urge them to exercise extreme caution and advise them to visit scamsmart.

On 27 March, the Pensions Regulator issued guidance to trustees that discussed the possibility that some trustees may wish to pause transfers for up to 3 months. I discuss this further below, but clearly, if trustees do this, they will need to communicate this carefully to members, including the reasons for their decision.

The Pensions Regulator, the FCA and the Money and Pensions Service then published a joint statement on 1 April urging savers to take their time and visit the Pensions Advisory Service website for free guidance before making any decisions about their retirement savings. In addition, the statement says worried savers should book a Pension Wise guidance session (if they are eligible) and to use an FCA-authorised financial adviser to help make the best decision for their own circumstances.

In the light of the above developments, trustees should promptly review their communications and ensure they remain appropriate and in line with evolving guidance.

In line with the PASA Guide to Good Practice (and now being consulted on to create a Code) trustees should also consider providing members who are over age 55 with an early retirement illustration alongside any request for a transfer value quotation. This is because evidence suggests members (and sometime their advisers) are frequently unaware that they can generally draw their benefits from schemes from age 55 (normally reduced for early payment, but simply to reflect the longer time it is being paid for). For some schemes, proactively reminding deferred pensioners about their options, and warning them about scams, will also be helpful. An early retirement option, including tax free cash, could be very valuable for some members at present.

Trusted advice

The FCA had previously promised a response to their consultation on pension transfer advice by March 2020. We were expecting their response would be to outlaw “contingent charging” pretty much immediately. However, the FCA have just recently confirmed that any rule changes will now be delayed until later in the year. The practice of contingent charging was criticised by many commentators as being part of what went wrong with the British Steel transfer scandal. It is therefore rather worrying that the FCA is delaying bringing in rule changes that could better protect members at a time when many will be more vulnerable.

A growing number of our clients are appointing a specialist financial adviser firm to help their members make better retirement decisions and advise on all their different options including the option to transfer. Such clients can be confident that their members are accessing top quality advice, and that the adviser is not biased towards a transfer value.

Restricting transfer values?

As I mentioned above, the Pensions Regulator issued guidance guidance on 27 March that trustees can consider suspending quoting and/or paying transfers to give them time to review transfer calculations in terms or to ease the burden on administrators. The Regulator went on to say that although they cannot waive any requirement for trustees to report failure to issue quotations or make payments within statutory timescales (usually 3 months), it does not intend to take any regulatory action in the next three months against the trustees who report such breaches.

After three months, if they feel it is in members’ best interests, trustees can continue with the suspension of quotations and payments but must notify the Regulator and be clear about their reasons for the continued suspension or delayed quotation. Whilst I don’t think the majority of schemes will make use of this easement, some will, and it could help to protect the finances of schemes, and members.

Communicating clearly with members; reminding them of their options; and warning them about scammers whilst enabling them to have access to good quality financial advice will go a long way to help protect members at a time when many will be most vulnerable. For more advice about what action trustees should be thinking about as a result of Covid-19, please see our action plan, Navigating uncertain times.