Ken Davy: "Taking a weather check on pension freedoms" Ken Davy: "Taking a weather check on pension freedoms"

02 Aug 2017

BBC weatherman Michael Fish famously failed to forecast the hurricane in October 1987, which overnight destroyed 15m trees and turned the town of Sevenoaks into just one oak.
I therefore take no pleasure in being proved right about the inherent dangers of pension freedoms, which I warned would inevitably lead to consumer detriment. Introduced more as a political expedient than a carefully thought through policy, the pension freedoms chickens are now coming home to roost, with serious financial consequences for advisers and consumers.

Somewhat belatedly, we are now seeing a flurry of regulatory activity around the dangers of transfers from defined benefit schemes. In addition, it is clear that many thousands of consumers are transferring savings from secure, well-managed and tax-efficient defined contribution schemes and personal pensions into inefficient bank accounts or similar, paying low or even no interest, while often creating an unforeseen tax bill in the process.

We are now seeing a flurry of regulatory activity around the dangers of transfers from defined benefit schemes
We are also starting to see the results of the actions of the minority of advisers whose irresponsible, reckless and – in some cases – criminal behaviour has facilitated wholly inappropriate pension transfers.

It is no coincidence that the FCA is issuing warnings about how to deal with pension freedoms at the same time as numerous clients are being referred to the FSCS.

The ultimate cost to the FSCS of this reckless behaviour is not yet known. However, we do know that until the funding of the FSCS has been reformed, the cost will fall wholly unfairly on the adviser community.

Once again it will be the responsible, compliant and well-governed advice firms that have to pick up the bill for the actions of a small minority of careless, reckless or criminal advisers. My forecast is not about us facing a hurricane, but rather that as a result of pension freedom we will see an avalanche of claims on the FSCS.

I believe most of these problems could have been avoided if the government had consulted properly before introducing pension freedoms. If it had, we could have all enjoyed pension freedoms that delivered better outcomes for consumers, advisers, regulators and the government.

Ken Davy is chairman of SimplyBiz Group


Testimonials

"I left Sesame December 31st 2010 and took up Direct Registration with FSA. My Compliance is now handled by SimplyBiz.

"Firstly, you need to understand that Sesame may not tell you the truth with regard to 'the world outside Sesame' - I would suggest to you that you should believe nothing. If you leave they lose a stream of revenue. They may tell you that the FSA will be making it harder for small businesses operating outside the sphere of the network. Do not believe them.

"What are the advantages of direct authorisation? I'm no longer being treated as lowest common denominator. I have scope to use wider range of research tools. I've seen a twofold plus increase in my written business (it is growing annually.) I receive top class support services, positive meetings for members and have a more positive attitude to business.

"My advice to advisers at the time (the ones I came into contact with anyway) was to exit Sesame at the earliest opportunity and this advice remains still."

Colin Palmer
Colin Palmer Financial Services
 

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