Yesterday LEBC resigned its permissions to offer regulated advice on the transfer of safeguarded rights within a pension scheme (DB transfers).
It also decided to stop advising on Flexible Retirement Options such as Pension Increase Exchange and Enhanced Transfer Values. This means that they will not only not be tendering for new schemes, but existing projects will go uncompleted.
This is a major change in direction for one of Britain’s senior corporate pensions advisers and suggests an intervention by the FCA.
We learnt of this through Hannah Godfrey
— Hannah Godfrey (@Hannah_Godfrey) September 2, 2019
and NMA were quick to follow up on the implications for the industry
This is a biggie. LEBC has been advising members of the Nortel pension scheme, but was also an independent national with a good reputation, which claimed it could drive down the cost of transfer advice for its customers. https://t.co/2gDP8bS74p
— Will Robins (@Will_Robins) September 2, 2019
We should be in no doubt that the regulatory climate has changed.
Unlike individual CETVs which are initiated by members, the work LEBC was involved with resulted from discussions between trustees ,sponsors and their institutional advisers – typically the pension consultancies of large accountancy firms and the corporate arms of the actuarial consultancies. The advice to set up these ETVs and FROs did not come from directly regulated firms but from firms working under the permissions granted by the Institute and Faculty of Actuaries. Firms as various as Aon, Mercer, Willis Towers Watson and my own First Actuarial.
The work was carried out with the full knowledge of the Pensions Regulator and there has been free interchange between the Regulator and these firms in terms of senior personnel. David Fairs, ex KPMG is now head of policy at tPR, Steven Soper, now at PWC was Executive head of DB at tPR.
It was convenient all round that the actuarial practices had firms such as JLT, Origen and LEBC to do the de-risking and I expect a roaring silence from them over what appears to be a firm “no” from the FCA on what was firmly “yes” from tPR.
LEBC are caught in the middle and I feel for their head of Retirement Advisory Nick Flynn and their CEO Jack McVitie.
What does this mean for schemes and their advisers?
LEBC were generally considered within the industry to be the go to company for individual advice forming part of corporate de-risking programs. They offered services to employers and members not only got the benefit of LEBC’s advice, but had the bill picked up either directly or indirectly by their bosses.
Trustees were comfortable with all this as the funding position of their schemes (especially on a buy-out basis) was improved. This did not of course mean that the scheme was improved -the scheme shrank and its social purpose diminished, but trustees are taught now that their first duty is to tPR , who’s first duty is to the PPF and the fact that the scheme was set up to pay pensions (not (c) ETVs or PIEs) is forgotten.
The days of de-risking through offering members what Steve Webb used to call “sexycash” seem to have entered a crepuscular darkness. I have predicted that this would end badly and it has.
The problem is that tPRs agenda has stopped being about people’s pensions and become about pension schemes. Instead of worrying how to get people their pensions, tPR now has to worry about the politics of solvency. Meanwhile the FCA have intervened and look likely to intervene a great deal more.
Until recently, pension schemes and their advisers did not have to worry about the FCA, but that is changing fast. The CMA has recommended that investment consultants become FCA regulated, many schemes now report DB transfer activity to the FCA and now some schemes will be caught in the middle of a de-risking exercise, without a key part of the advisory chain.
The message for schemes and their advisers (and I include my own firm in this) is that the FCA aren’t coming – they’ve arrived.
How will this go down in Brighton?
The Pensions Regulator is in Brighton and the FCA are in the east end of London. They are only 70 miles apart physically, but the policy agenda looks wider than that.
I would be very surprised if, in the current climate, any more tenders for ETV and FRO “exercises” are issued this year. Since the funding plans of many of tPR’s schemes depend on further de-risking, the FCA appear to be throwing a spanner in tPR’s works.
I do not think that this intervention will go down well in Brighton.
How has this gone down with IFAs?
The IFAs who’ve been noisy on twitter pick up on LEBC offering too much for too little
They were not charging contingent fees.
They were charging too smaller of a fee for the work, up to £1,500 or so paid by the pension scheme, and that is not enough to do the work properly! @Cunningham_UK @DavidPenneyPRW @RedCircleFP @henryhtapper
— Eugen Neagu (@BespokeFS) September 2, 2019
Ironically, LEBC did not charge for advice on a contingent basis and no doubt this will be picked up by the IFA lobbying groups who can now point to an example where fixed fees led to bad outcomes.
In short the IFAs who act as pension transfer specialists are dancing up and down with glee.
How does this go down with the consumer?
I have not heard any consumers complaining about the way they were dealt with by LEBC, my professional experience suggests that customers were only too pleased to have LEBC’s services offered by their employer and that LEBC carried out their work to a very high standard.
But I do not know what has carried on between the FCA and LEBC , we have only the cold comment of LEBC’s backers, B.P Marsh
As part of its market-wide review of the DB transfer market, the FCA has undertaken a review of LEBC focused on the division of the business that provides DB pension transfer advice. Following this, LEBC has agreed voluntarily to cease the provision of DB pension transfer advice and projects, forthwith.
“In line with its successful long-term investment strategy, B.P. Marsh will continue to support LEBC as it evolves its business, which provides a range of financial solutions, for the benefit of its customers, staff and shareholders.”
LEBC will move on , and so will the industry, the days of de-risking through FROs and ETVs look over and ironically – it was not the Pensions Regulator but the FCA that called time.
Some consumers may wish that LEBC had called earlier.