MASTER: DB Transfers – what did we learn?

Last week we hosted one of our MASTER events, focusing specifically on defined benefit pension transfers. The regulatory landscape for these products has changed at speed over the last few years,  so the purpose of this event was to review all the changes and look at how advisers have adapted their processes to implement them.

The event was hosted by Apricity’s Christian Markwick and Alanis Daniel. Christian and Alanis have a wealth of experience in working with firms and their defined benefit files.

In order to get the most out of the event, the MASTER sessions are designed to be interactive between the hosts and the attendees. This allows the attendees to share their best practice and bounce ideas off each other. We have found this works really well and feedback from the MASTER sessions has always reaffirmed this.

So, what did we talk about? What better way to start a session on defined benefits than none other than contingent charging?! This has been spoken about in the industry for years and the potential for bias to exist when advisers are only paid for should the recommendation be to transfer out of the scheme. A recent freedom of information request to the regulator found that the conversion rate for firms offering contingent charging was nearing 70%, versus firms with a non-contingent model sitting just below 30%. This led to an early discussion between the attendees of how exactly do they charge for their defined-benefit work.

Pre-advice work of triage and abridged advice was then discussed. We looked at some examples of good and poor practice, and spoke to firms about what they offer. Abridged advice is not a mandatory requirement and it was interesting to see not all firms on the session offering it. As you can imagine, after these conversations it was time for a well-deserved tea break!

Returning recharged and caffeinated, on to Apricity’s (or maybe just Alanis’) favourite topic… FILES! What does the perfect defined benefit file look like? How are you demonstrating KYC? What about vulnerability? What methods do you use to discuss, and document capacity for loss? How are you assessing and documenting a client’s attitude to transfer risk and their understanding of the risks involved with a transfer? All of these questions, and many more, brought out constructive conversations for all.

One of the new regulatory requirements brought in was the need to appraise the workplace pension as a destination for funds post recommendation. And the appraisal needs to go further, you need to clearly demonstrate (if applicable) why a different scheme is more suitable than the workplace scheme. Conversations centred around the value of ongoing advice in response to the FCA’s view that many consumers would not benefit from ongoing advice, and therefore would be best suited to the default WPS fund.

Another new requirement is the additional CPD requirement of 15 hours for pension transfer specialists, on top of existing CPD requirements. The majority felt this was a comfortable requirement, and they were potentially doing it anyway. The need for this CPD to be documented is key as this can be requested and the standard of the documentation will be checked. Apricity has a suite of CPD available to clients.

It wouldn’t be a session about defined benefit pensions if we didn’t speak about Professional Indemnity Insurance. The market has drastically changed over the last years, mainly in reaction to the mass claims on British Steel pensions and unfortunately, all DB work has been tarnished with the same brush. We would recommend firms engage with their broker approximately three months prior to renewal, and pay close attention to their PI schedule. Any exclusions, excess or inner limits applied will need to be declared to the regulator. Also in terms of regulatory reporting, RMAR-M is a new reporting requirement for firms on their DB business.

The session stimulated some fantastic conversations between ourselves and the attending individuals, and we imagine most will have something to tweak, or fine-tune, in their processes off the back of the workshop. We appreciate the changes have been sizeable, and credit the firms engaging with these sessions to ensure they are aligned with the regulator’s views. On that note, we may even have a revamped defined benefit whitepaper summarising all the changes coming out just on all of this in the coming weeks…

Thank you to everyone who attended and participated.

Maddie Delboy – Compliance Consultant

You can register here for our next MASTER: Training & Competency in August.