Regulation in the time of Covid: Part 3 (106) 21/6 - the pension freedoms' scandal continues

Starting on 16 March last year, I began writing daily blogs about the impact of the Covid crisis on financial regulation. Other issues, notably Brexit and digitisation, have featured as well but Covid remains the dominant driver of regulation as we enter 2021.

The FCA's latest pensions' missive is a sign that the saga of pension freedoms, triggered by the 2014 budget and the regulator's too-rapid policy response, is entering a new phase. At first sight, the letter - to pensioners who were advised to transfer out of defined benefit schemes by IFAs who have since gone into liquidation, encouraging them to complain to the compensation scheme (FSCS) or the liquidator - looks like the initial stage of a bigger exercise. It also raises questions about the regulator's overall strategy in this area.

The largest mis-selling scandals since the FSA was formed in 1998 - the pensions' mis-selling that originated in the 1980s, endowment mortgages from the 1990s, and PPI - each lasted more than a decade and were characterised by the regulator initially underestimating the scale of the problem. In the present case, the problem appears to be more firmly time-bound (2015-18) and the quality of information more robust (235,000 consumers received transfer advice in this period, 69% of these were advised to transfer, but only 48% of transfers the FCA has reviewed were judged suitable). However, there are still several unknowns and some potential pitfalls.

To take a few examples... (1) The reliance being placed on the FSCS to compensate individual consumers is relatively untried and the initial tranche of 2,677 letters seems likely to rise; this will test the system. (2) Putting the emphasis on consumers to complain has a patchy record, especially when (as here) there is a time limit. (3) Other pensions' work will be going elsewhere in the FCA and in similar situations it's often proved hard to keep the x-organisational coherence and consistency.

Looking ahead, much depends on the problem having been fixed by the 2018 changes, and on the robustness of the sample that produced the 48% suitability rate.

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