UK companies are imposing third-party checks on financial planning firms providing retirement advice to employees in a sign of growing boardroom nerves over pension mis-selling.

Independent financial advice firms pitching to work for multibillion-pound corporate pension schemes are being required to have the transfer advice they give to pension scheme members reviewed by an independent third party not linked to the regulator.

The move reflects the concern of some of the UK’s biggest companies about a growing pension mis-selling scandal that has unfolded since 2015 reforms made it more appealing to members to trade guaranteed “defined benefit” pensions for cash lump sums.

This week the Financial Conduct Authority, the financial watchdog, warned that up to £20bn of DB transfers may have proceeded on unsuitable advice, with tens of thousands of members now at risk of running out of money in retirement.

Tesco, the retail giant, has appointed a third-party governance provider to monitor the transfer advice provided by two firms appointed to give retirement support to 220,000 members of its £13bn pension scheme.

As part of their contract with Tesco, the two IFAs have also agreed to continuing checks on their capital adequacy and complaint levels, as well as the products they are recommending to members.

“The choices members make about their retirement savings are so important and influence the lives that they lead in their later years,” said Ruston Smith, chair of the Tesco Pension Scheme Trustee Board.

“Supporting members in getting good independent financial advice on their retirement savings that’s clear and appropriate for them, by appointing two IFA firms to choose from, and having ongoing independent oversight and reporting of those appointed IFA firms, feels the right thing to do.”

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Experts said concerns about reputational damage from bad pension transfer advice, and ensuring members get better outcomes, were spurring employers and trustees to take the action.

“The appointment of a body to monitor the advice provided by an IFA is an unprecedented step in the corporate world,” said Francois Barker, partner and head of pensions with Eversheds Sutherland, a legal firm.

“There are other big schemes considering doing the same as Tesco. Trustees and employers are realising that doing nothing and leaving members to find a reputable adviser on the internet, or on the local high street, is a risk they can no longer afford to take.”

Boardroom concerns about pension mis-selling have grown since the FCA revealed in 2017 that most of the transfer advice it had reviewed was unsuitable. Trustees of the former British Steel Pension Scheme came under fire in 2018 for referring thousands of members to a website, that listed IFAs who had been under FCA investigation.

The regulator believes most people are better off not giving up a guaranteed DB retirement income, and those looking to shift a DB pension to a riskier personal pension arrangement are required to obtain advice from an independent pension transfer specialist if the cash value is more than £30,000.

However, since 2015 around £80bn of DB transfers have taken place, with around £30bn of this flowing out of FTSE 100 company pension schemes. Large employers keen to reduce their schemes’ liabilities have also fuelled interest by hiring IFAs to provide free, or subsidised, advice to members considering transferring.

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Experts said worries about legal action were also spurring employers and schemes to monitor the advice that their pension scheme members were being given.

“I have recently met with several FTSE 100 and indeed some non-public entities as well who, motivated by the British Steel situation and the FCA’s recent findings of extensive mis-selling, are keen to find ways to ensure their members receive good advice as they enter retirement,” said Stephen Soper, a partner with PwC, the professional services firm.

Although the FCA is strengthening its rules to make the market safer for consumers considering transfers, some believe the action taken by employers and trustees is a sign of regulatory failure.

“The fact that major employers are having to take these steps is a sad indictment of the FCA’s failure to maintain trust and confidence in this market,” said Mick McAteer, co-director of the Financial Inclusion Centre, a not-for-profit think-tank.

The FCA said: “We welcome efforts to ensure that consumers have access to good quality advice. It is not uncommon for third parties, such as compliance consultants, to check advice given by firms and it is for individual employers and trustees to decide their approach.”



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