The nature of triage and its relevance to scheme trustees

This month saw the issue of two entirely different but connected regulatory papers. The first snappily entitled ‘Guide for employers and trustees on providing support with financial matters without needing to be subject to FCA regulation’, is was jointly drafted by both the FCA and the Pensions Regulator, with the second being FCA’s finalised guidance on advising on pension transfers, aka FG21/3, which is unashamedly directed at firms giving DBTV advice.

Although intended for completely different purposes and audiences, both documents address a common theme, the extent to which support can be given to members of workplace pension arrangements without straying across the regulatory perimeter. In the case of trustees of occupational arrangements, the need to provide support in one form or another will arise throughout the period of membership. However, several high-profile Pension Ombudsman judgements have highlighted the nature of the responsibility that trustees may face where scheme members are considering transferring benefits.

In this respect, the challenge for trustees in supporting members bares similarity to that of a financial adviser engaged in providing triage for pension transfer advice. Triage is not a regulated activity, provided it focuses purely on the provision of purely factual information, and can be provided by an unauthorised party such as a scheme trustee. However, in practice, it takes significant skill and knowledge to do so effectively. 

The range of information needed to provide robust and effective triage includes matters a non-authorised individual is unlikely to be familiar with. Indeed, most financial advisers, unless they have received specific training, are unlikely to be able to do give triage effectively. Critical to triage is a keen understanding and awareness of factors making up the regulatory perimeter, and the practical skills needed to maintain dialogue with the member without either being drawn into giving opinion or being inferred as doing so.  This is highlighted in the TPR/FCA guidance to trustees and employers, which states that presenting factual information in a way that seeks to promote or encourage a transaction could be seen as a financial promotion.

With this in mind, The natural instinct of a trustee or employer may be to want to protect employees and scheme members from harm, but there are significant dangers in doing so. Irrespective of whether someone proceeds with a transfer or not, they will be exposed to risk and the consequences of either decision can be significant. Human nature is such that when such consequences come to bear, individuals are quickly apt to delegate responsibility to others and hold them to account. The TPR/FCA document is clear in guiding trustees and employers that it is not their role to prevent a member from making decisions which the trustees or employer might consider to be inappropriate. 

However, there is a world of difference between trustees accepting that scheme members may make poor decisions and allowing them to do so through ignorance or having been misled. Ensuring members have the information needed to make an appropriate decision on whether to take advice on a pension transfer, and the consequences of doing so should be the key concern. The recent action taken by Rolls Royce against a sudden influx of transfer requests by authorised firms indicate why trustee concern is beginning to shift beyond scammers and is starting to look at the issues members may face when dealing with authorised firms. Certainly, the experience of British Steel would suggest the benefit to both members and trustees of preparing and supporting members before they commit to expensive and potentially consequential advice.

Since last October, financial advisers have been banned from providing the kind of contingent advice that would enable a member to incur costs only if a transfer was recommended, and for such costs to be offset from the value of the transferred benefits. As a result, a member will now incur costs irrespective of the advice which, if it is to remain, will result in the member having to fund substantive fees directly. The potential financial impact of this is not to be underestimated and should be a critical consideration before considering taking advice. In this respect, financial advisers will be familiar with the concept of ‘capable and comfortable’ as it applies to the risks inherent in recommending a pension transfer. 

Precisely the same considerations apply even before advice is considered.  In FG21/3, FCA restate their position that the starting point for advice is that a pension transfer will not be suitable. As such, this will apply to the vast majority of those who may be considering taking advice and incurring costs that, irrespective of the outcome of advice, may themselves be highly detrimental to the member. However, presenting such information to members needs to be handled sensitively as even the inference that costs may or may not be justified is likely to cross the regulated perimeter. 

The challenge for trustees is, in the face of the experience of both British Steel and Rolls Royce, to rely purely on regulated firms to carry out triage, or whether to take internal measures to prepare members to take advice. Certainly, there are regulated firms that specialise in providing independent triage services both to regulated firms and direct to schemes. In these days of remote video communication, the cost of such services should necessarily have reduced to a level where it could form a cost-effective addition to trustee support of scheme members. 

By Derek Lavington

Senior Director and Compliance Officer at Leabold Financial Management.