Employers and trustees take many decades building up valuable pension pots to support the retirements of millions of people.  But when a member reaches retirement, they are often left on their own to make some of the biggest financial decisions in their life.  This is the topic explored in this excellent recent article by Ruston Smith, Chair of Tesco Pension Fund.

When someone approaches retirement, they have a number of decisions to take about their various pensions. These questions include:

• when should I draw my pension? 
• should I take tax-free cash? 
• should I transfer the pension elsewhere? 

Pensions are complex, and the best answers are not always intuitive. Not only that, but the amounts of money involved can be eye watering, and so the cost of making a “poor” decision, can easily be measured in many £10,000s.  And if the member happens to stumble across a financial adviser who is more interested in lining their own pockets, the charges associated with implementing their advice can sometimes turn a mildly poor decision into a disastrous one.  

Many members of pension schemes would benefit from good quality, unbiased, financial advice to help them make the most of their retirement savings.  But such advice is often hard to find, and can be expensive.  In response to this, a growing number of trustees and sponsors of pension schemes have appointed a financial adviser firm (or panel of firms) to help their members make good decisions.  A number of industry surveys suggest that more than 20% of schemes are now doing this and it increasingly appears to be a sensible step for trustees and sponsors to take.

Understandably, some trustees are concerned about appointing an IFA firm because of reputation risks.  So how can trustees and sponsors ensure that an appointed IFA firm continues to deliver a good service?  For some years now, LCP has supported trustees and sponsors in monitoring IFA firms. This includes considering developments in their business strategy, any compliance concerns, and tracking the proportion of members who are advised to transfer, or who are insistent customers. In response to recent independent requests from a number of different schemes, we are now formalising that service to provide the comfort they need that their chosen IFA firm remains a good fit for them and their members.

The objective is simple: to work together with trustees, employers and IFAs to minimise poor decisions and achieve better financial outcomes for members who have worked hard all their lives for their pension.

 Jonathan Camfield is a partner at LCP, a member of the Incentive Exercise Monitoring Board and the Pensions Advice Taskforce.  He has written a number of joint papers with Sir Steve Webb of Royal London on the topic of protecting members’ pensions.