The Financial Conduct Authority (FCA) should be given more power to stop scammers taking advantage of defined benefit (DB) pension transfers, according to the Liberal Democrat's Treasury and economics spokesperson in the Lords.
Speaking to New Model Adviser® at the Liberal Democrat party conference, Susan Kramer said legislation in parliament would not be enough to stop criminals looking to take advantage of a growing demand for pension transfers.
'I think there needs to be flexibility and subtlety, and you can’t do that necessarily at the parliamentary level,' he said.
‘We don’t have the expertise, the drafting skills and we can’t do the consultation process which is absolutely vital, and I think the regulator and the industry need to be working hand in hand to come up with solutions, and we can provide the legislative framework for them to do that.’
Kramer said the FCA should be handed new powers to stop scammers in order to protect the reputation of the advice profession.
'The scamming industry simply switches from one opportunity to another, and will soon be into the pension switching,' she said.
‘In the end, you have to keep the profession clear of rogues or everybody gets tagged as a rogue. If you’re somebody who sticks by the rules, there must be nothing worse than first knowing that you’ve lost business to somebody who doesn’t have the client’s best interests at heart, and secondly that you have to pay for the damages caused by them via the FSCS. It seems fundamentally unjust.’
Advice vs guidance
Kramer's position could soon win more support in parliament, as MPs on the influential Work and Pensions Committee will investigate pension freedoms and the possibility that the legislation has made fraud easier.
The inquiry, announced after New Model Adviser® spoke to Kramer, has not specifically singled out DB transfers as an area of interest, but it will look at scams and whether people are receiving the right kind of advice before making a decision about their pension pot.
Kramer said the pension freedoms will cause more problems when people shift from DB to defined contribution (DC) schemes but do not receive any advice or guidance on their options.
‘At the moment, a lot of people who are tapping into their pension pots are actually tapping into relatively small pieces of their pension provision, because for most of their lives, they’ve been in DB schemes and have only been in DC briefly, so the flexible pot is quite small.
‘So tapping into it and paying off your debts makes sense, but that is going to change as more and more of people’s pension provision is tied into flexible defined contribution schemes, and therefore what they do with that money is going to totally shape their lifestyle and what they do after that. So I think the regulator and the industry need to be explaining much more clearly what advice is and the difference that it can make.’