Jonathan Watts-Lay of WEALTH at work says trustees must step up and ensure appropriate retirement processes if members are to achieve better outcomes
Pension scams have been on the rise for many years and increased significantly following the introduction of Freedom and Choice in pensions.
However, the situation has become heightened due to the impact that Covid-19 has had on global market volatility and the fact that many household incomes are under extreme pressure.
Unfortunately, fraudsters see turbulent times like this as an opportunity to con savings from scheme members. In July, Action Fraud reported victims of coronavirus-related scams had lost over £11m, with it previously stating that pension scams had been among the most common type of fraud during the crisis. Victims of pension scams can be left approaching retirement with a significantly reduced income and in some cases entire life savings can be lost.
While the regulators are already aware of this and are putting measures in place, there is still a long way to go. Trustees are the first line of defence in protecting retirement funds and the industry is expecting them to step up to the task.
Providing financial education and guidance to members at retirement can help to ensure their options and the risks involved are understood. This in turn will help them to make informed decisions and avoid costly mistakes. It can also help members decide if they need further support such as regulated financial advice, which is also being encouraged by the Financial Conduct Authority (FCA).
Trustees are currently under no legal obligation to provide access to regulated financial advice to their members and for a long time there has been a concern that it carries risk for the trustee.
However, a discussion paper from Eversheds Sutherland and Royal London suggests this theory only looks at "the risk of doing something and not at the risk of doing nothing". It highlights that simply referring members to a list of advisers for them to choose from can lead to significantly poor member outcomes and therefore member distrust. In some cases, this can result in reputational damage as seen with British Steel.
If done correctly, facilitating access to regulated financial advice does not carry the risk that many presume. However, before any advice firms are brought on board there are several tasks that trustees can carry out to make the process far more thorough and robust. These include:
Checking whether the firm is regulated
Before a trustee approaches any advice firm they should check that the company is registered with the FCA first via register.fca.org.uk. This will confirm whether the firm is regulated and if it is authorised to provide specific advice such as pension transfers.
Checking a firm's experience will help determine whether its advisers will be a good fit for the scheme members. For example, advisers with workplace experience will be familiar with various types of occupational pensions and will have knowledge of other workplace benefits.
Speaking to other schemes using their services will give an independent view of the firm, and looking at member feedback will help measure the quality of the advice given by the firm's advisers.
Reviewing compliance processes
Checking whether the firm has a robust compliance process in place will help ensure the quality of advice given to its members. For example, does the advice firm compliance check 100% of its cases before they proceed?
Checking pricing structures
Requesting a breakdown of costs for the types of advice available will help trustees ensure the costs are competitive for their members.
Ultimately, if an adviser is introduced to a scheme after a thorough due diligence process, trustees can feel confident that the responsibility for the regulated financial advice given to members, and the consequences of that, rest with the chosen provider and not the trustee. Now is the time for trustees to step up to ensure a robust retirement process leading to better outcomes for all.
Jonathan Watts-Lay is director at WEALTH at work