Stephen McPhillips, technical sales director, Dentons Pension Management Limited, looks at the practical implications for advice firms when a pension provider fails
Regular readers of Professional Paraplanner may recall that I recently wrote an article on the importance of due diligence – particularly in relation to providers of self invested personal pensions (SIPPs). Only a few short months have passed since the publication of that article but, sadly, in that time we have witnessed the passing of at least one other SIPP provider into Administration.
For the sake of brevity, I will refrain from re-stating a possible range of due diligence considerations that paraplanners and their firms may wish to consider when reviewing/selecting a SIPP provider. Instead, I will focus here on what can happen when a provider fails and/or falls into Administration – and the possible impact on clients.
Possible impact on clients
Before we delve into a situation where a provider has actually failed, one aspect to consider is that there may be issues apparent in advance that suggest that the provider is struggling without having actually failed. These might include, but are not limited to, administrative errors, long delays in providing information and handling transfer-out requests, difficulties in being able to contact the provider by phone, overdue Company Accounts on Companies House website and so on. It may also include notices on the Financial Conduct Authority’s website regarding restrictions it has agreed with/placed upon a provider. Some of these issues might only be apparent to the adviser firm in the short term, as it tries to shield clients from the effects of poor service and other impacts.
However, when a provider actually fails, it is highly likely that its clients will suffer noticeable consequences of this. Very recent industry events have demonstrated that the following might apply in the event of a provider falling into Administration:
- A new buyer is urgently sought for the failed business, meaning a period of uncertainty for clients and adviser firms in the meantime
- Pension contributions into schemes of that provider are suspended, meaning that alternative vehicles may need to be used to meet clients’ ongoing needs
- Transfers into/from the provider are suspended, meaning that clients cannot simply extricate themselves from the failed provider in order to move to one of their choice or the adviser’s recommendation
- The failed provider still levies its fees, so costs still accrue despite potentially lower levels of service/reduced functionality being delivered
- Clients are unable to complain about the provider to the Financial Ombudsman Service (FOS) during the period of Administration due to a statutory moratorium.
Any one of these consequences, on its own, could be of considerable concern to clients and could lead to very unsettling times. Roll all of these together and it’s a very difficult situation for clients to find themselves in. Clients might also experience difficulty in placing trades, making new property purchases and so on.
What can be done?
If the provider has been instructed/has agreed to suspend transfers/switches to another provider then, until that restriction is lifted, there is no option to break the link and move away from that provider to another one – despite an eagerness of receiving schemes to assist and take on those clients unfortunate enough to be affected by the situation.
Of course, once such restrictions are lifted, there may be a rush leading to a mass exodus from the failed provider. That possibility alone might be a factor in any buyer stepping-in to take on the failed provider’s business; if there is a concern that clients will leave in droves once restrictions are lifted, why would a buyer wish to pay in advance for clients it might not retain long term?
What can be said with some certainty (and thankfully, considered against a backdrop of a beleaguered industry), is that there will still be good quality SIPP providers out there, to whom advisers and clients can turn when the time comes to finally make the move.
This article was first published in the September issue of Professional Paraplanner.
