In December 2008 the FSA issued a report on the findings of the thematic review it undertook around pension switching. This was closely followed, in February 2009, by a template (effectively a checklist) which advisers could use as a guide for the processes and recommendations outlined in the report.

So, nearly twelve months after the results of the thematic review, where are we now?

Let’s first remind ourselves of the four key concerns arising from the review:

1. The switch involved extra product costs without good reason

The issues here were mainly around clients being switched into new plans with additional costs which were not explained to the client. Typical examples were:

• Paying for investment flexibility which was neither needed or used (eg SIPP fees where wider SIPP assets were not actually required)
• An income drawdown option, again involving fees, before the option was actually required

The first question an adviser must ask is whether a Stakeholder plan would have been equally as suitable in line with RU64 (yes, it does still exist and remains a key factor in pension switching considerations as it does with ‘new monies’).

In terms of added options, using a plan where these options are only paid for when they are actually used is essential eg a hybrid SIPP which gives you access to wider SIPP assets, but where you only pay SIPP fees at the point wider SIPP assets are required.

2. The fund(s) recommended were not suitable for the customer’s attitude to risk and personal circumstances.

There were a number of examples of poor practice here, one being where advisers did not do like for like comparisons between the ceding scheme investments and those of the new plan.

One example of bad practice which we see time and time again is where a recommendation is made by comparing the price of default managed funds across providers – but where these funds do not actually match the customer’s attitude to risk and will not actually be used.

The key here is that a complete review of the customer’s objectives including a review of their attitude to risk is essential. Portfolio planning tools can be key in supporting this – both in assessing attitude to risk AND comparing against existing investment portfolios (including, for the better portfolio planning tools, non pensions investment), and rebalancing as necessary. One outcome may well be that the customer’s objectives can actually be met by switching between the funds of the existing scheme (ie a transfer to a new arrangement isn’t necessary).

3. The adviser failed to explain the need for, or put in place, ongoing reviews, when necessary

Sounds obvious doesn’t it? Ensure that the client is aware of the need for a review and why. Document the need, and ensure that they are diarised and actually happen!

Of course, if regular reviews are agreed, suitable remuneration is essential to support this. Again, quality portfolio planning tools can play an important part here in enabling you to diarise customer’s review dates.

4. The switch involved a loss of benefits from the ceding scheme without good reason

This could include the loss of any guaranteed annuity rates, or important Final Salary scheme benefits. This doesn’t mean to say that a switch cannot take place where these benefits exist, but that the pros and cons of giving up these benefits must be fully explained. Providers offering a good suite of customer facing literature may be helpful in getting these important messages over to clients.

One common theme across all of the above areas is the need to discuss/explain everything to the customer – and document it all.

Twelve months on

Hopefully most, if not all advisers have reviewed existing records and processes – perhaps even using the FSA template. The FSA undertook a round of seminars around the country during the first half of the year to explain their thinking. This led to a round of adviser visits in quarter three of this year – culminating in a number of fines for some firms.

The pension switch market continues to be one of the biggest focuses for advisers. The thematic review was never intended to prevent such activity – but to simply ensure that a thorough review of the client’s circumstances is undertaken and , where a switch to another arrangement is recommended, this is fully documented.

At Zurich, we embraced this early in the year, building a campaign designed to help advisers ‘every step of the way’. This included our own nationwide adviser seminars, a range of new adviser and customer-facing material, and a new webpage (www.zurich4pensions.co.uk) dedicated to this. Our award-winning portfolio planning tool is also central to all of this in helping the adviser with everything from checking their client’s attitude to risk, to building and maintaining investment portfolios based on all of the customer’s investments, and diarising regular review dates.