Tata Steel pensions scandal brewing – advice system still open to corruption

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As reported in today’s Financial Times (2 December 2017) an advice scandal is brewing around the Tata Steel pension fund. Some advice firms have capitalised on pensioners’ ignorance by advising transfer into high risk funds with transparently unsuitable investment profiles, undeclared fees and undeclared conflicts of interest.

UKSA welcomes the new focus by the Financial Conduct Authority (FCA) on individual outcomes. The intention to make consumers more responsible for their financial decisions is an admirable one. But the FCA’s recent consumer survey makes clear the enormous gaps in knowledge and understanding to be closed before that responsibility can be universally undertaken.

The FCA’s own advice regulations, well-meaning though they are, are cutting off pensioners from a valuable unused resource, and that is the financially-competent staff within the pension fund and the sponsor company itself. It very rarely makes sense to transfer benefit rights from a well-managed fund to a third-party provider and a simple high-level review of ‘advice’ to do so would quickly identify the more egregious cases. This review would be all the more effective for being carried out by those with the habit of care arising from a good employer/employee relationship.

Exposure of the activities of a professional class – in this case IFAs – to robust review by those outside that class is much more effective than regulation for maintaining standards. Perhaps it’s time to apply this principle to fund managers in their role as responsible shareholders on behalf of their customers?