How we worked to better protect one client from the FCA’s promised DC investigation

We recently looked at the importance of considering workplace pensions as a receiving scheme.

This is in light of the Financial Conduct Authority’s (FCA) pledge to start scrutinising defined contribution (DC) switches, making it more important than ever to demonstrate that workplace schemes have been fully considered.

The following is a recent example of how we worked with and helped one of our clients, a large UK-wide practice, to improve its processes around considering workplace pensions as receiving schemes.

The work started after we raised the issue with the client and its compliance team. Both accepted there was a potential problem as workplace schemes had not been given adequate consideration in DC transfers and were keen to rectify the issue to limit any future action by the FCA.

DC transfers

Read on to learn how we worked to ensure the client’s advice process and systems are now more robust in the face of a complaint or FCA investigation.

DC transfers are core to the business, meaning the changes had to be carefully managed

The first challenge was that the client had been dealing with DC transfers as a core business for several years, meaning they had a back book of completed cases. Also, cases were currently being worked on and the pension holder was expecting the transfer to go ahead.

This meant that any changes made could not interrupt the DC transfers currently being worked on, so they were introduced in a way that allowed these to proceed, but gradually introduced new systems.

As the FCA is likely to give “points in credit” to any financial planner that recognises they have an issue around workplace pensions as receiving schemes, and then takes action to put it right, introducing the measures were made a priority.

Details now have to be collected on every workplace pension scheme

The processes we helped develop are now up and running, ensuring both the financial planners and the administrators collect detailed information on every workplace pension scheme a client holds.

It makes sure that detailed information is requested on every workplace scheme, both past and present, as well as any other DC pension the individual has. As a minimum, a breakdown of charges, investment funds and benefits provided will be gathered to ensure the most appropriate scheme is recommended to the pension holder.

As paraplanners, we send back fact-finds without workplace pension details

Part of the company’s advice process means that, if any transfer recommendation reaches us without adequate information, we send it back to the financial planner.

In reality this now never happens, as the administration team is under strict instructions to gather all pension information before it reaches us.

As a result, we are more efficient in the work we do as we are not chasing the planners for information, which has resulted in an increased number of suitability letters being written in a month. It has also reduced our costs to the client, as we no longer have to spend time chasing financial planners for information.

If there is no workplace pension, it has to be demonstrated

If the pension holder does not have a workplace pension, this has to be explained in detail. For example, the pension holder may be operating a salary sacrifice arrangement that is paid into a personal pension, which is likely to be an acceptable scenario.

Whatever the reason, a full and detailed explanation has to be provided by the financial planner, not just a cursory mention that the pension holder does not have a workplace scheme.

Most workplace pension schemes allow transfers in

One reason the FCA’s pledge to investigate is likely to result in high numbers of “unsuitable” findings, is that most workplace schemes allow transfers in.

As long as the pension holder is at accumulation stage, then it is likely the FCA will decide this is where the DC transfer should go – whether it’s a single pension or a consolidation of several.

This means any reason to use a non-workplace scheme has to stand up to thorough scrutiny. By developing systems that dovetail into our client’s business, we have been able to achieve this, providing them greater peace of mind.

In addition to this, as paraplanners it is our role to analyse the information provided and highlight any concerns we have about the recommendation. Due to the levels of information now being collected, this is extremely rare.

While pension transfers have dropped, other business has increased

It’s true to say that as a result of the systems now in place, the number of DC switches have reduced. This in itself tells an interesting story, and while you might see it as a negative, it’s worth remembering the transfers that have gone ahead are far more likely to be classed as “suitable” after an FCA audit.

As a result of the new systems though, financial planners have got into the habit of providing more detailed fact-finds, which has resulted in an upturn in other business for the practice.

This means the downturn of pension transfers has been countered by increased business in other areas while, at the same time, reducing our client’s exposure to successful complaints and FCA investigations.

Get in touch

If you would like to discuss how your business could benefit from our input on workplace pensions or other training we offer, such as using fact-finds more effectively, please contact us online or call on 01472 803110.