Kevin Hollister

When members are made redundant, or even when a scheme is just closed to future accrual, they may make pension decisions that are not in their best interests. Unfortunately, history shows us that there are many willing to profit from these decisions.

Looking at the worst case scenario of redundancies. The recent P&O case shows just how badly a redundancy exercise can be handled and the effect on the employees. Even when they are handled better it will be a very difficult time for many employees.

Those who have worked for an employer for many years may have stayed loyal and gone above and beyond on many occasions. If redundancy then comes, which is completely outside their control, there is an instant sense of powerlessness, insecurity and fear for the future. On many occasions, there is also bitter resentment towards the employer.

All of the emotions are perfectly understandable, however, they can all lead to poor decision making around the pension benefits they may have accrued with the company.

Unfortunately, on many previous occasions, there is ample evidence that unscrupulous firms and individuals will look to take advantage of these emotions at these times.

How do poor outcomes come about?

Leading questions are often asked at this time…two often quoted are…

• Is your defined benefit pension still safe with the company?
• You don’t want the company to benefit from your pension assets, do you?

The first question, tapping into the emotion of fear, will depend on the solvency position of the scheme and the future covenant of the company, which may remain very strong.

The second, feeding on resentment, isn’t valid. The company does not benefit from the pension the member has with them. Many companies would prefer people to transfer of their own accord. Paying transfer values is a lower cost for the company than securing the benefits in full with an insurer.

In the British Steel Pension Scheme (BSPS) transfer scandal, these types of questions were asked by many of the unscrupulous advisers that preyed on member’s emotions. This led many members to transfer from the BSPS, when it was clearly not in their best interests to do so.

Examples of where this would not be in their best interests include factors such as that they may not understand, or have adequate knowledge, to deal with the risks involved with a transfer away from guaranteed benefits. Others may have been able to achieve the retirement income they desired from their guaranteed benefits, or have had no desire for flexibility at all.

What is needed at this time?

It is clear these emotions will exist. What is also clear in these difficult times for members is that they need support and protection from their scheme more than ever. They need this before they make (or are led towards) irreversible decisions, which are not in their best interests.

Firstly, they need clear communications and reassurance on both the funding position of the scheme and the ability of the employer to support future contributions, if this is the case. They also need enhanced guidance tools to understand their scheme benefit entitlements, along with anything else they may have in more detail.

Secondly and most importantly, they must be clearly signposted to independent, high quality, experienced vetted advisers, if they do wish to consider a transfer. Directing members to high quality advisers is much preferable than allowing them to be approached directly, or simply pointing them to an adviser directory.

For some members, a transfer will be the right outcome, but this must only occur if evidenced by an advice process in line with FCA expectations and emotions separated from the member’s decision making.

Redundancies and closure to accrual are all times when members are most vulnerable. Providing access to scheme appointed IFA’s, or signposting a service that can provide vetted advisers to members, is the only viable option if we are to learn from the issues seen many times in the past.