Luxfer Group offers IFA to deferred members

It follows a growing trend of employers addressing concerns over the quality of individually sourced advice by giving members access to an employer-hired IFA.

Six out of 10 employers reported that members were having difficulties in finding advisers prepared to advise on DB transfers, when surveyed by the Association of Consulting Actuaries last year.

Employer-hired IFAs are something we’re seeing a lot more of

Simon Taylor, Barnett Waddingham

Trustees of the Luxfer Group Pension Plan are also reviewing the scheme’s approach to appointing member-nominated trustees, as they look to fill a current MNT vacancy.

Moreover, the scheme has switched asset managers, for its multi-asset allocation, due to concerns over the performance of Aberdeen Standard Investments’ embattled Global Asolute Return Strategies fund.

Freedom and choice for deferred members

The offer is being made to deferred members, as employees still employed by Luxfer already have access to this advice.

“Only those at least age 55 before March 2018 are included in this exercise,” states the newsletter, adding that members with very small benefits have been excluded, but may request details of their options.

In 2015, pensions freedom and choice reforms were introduced for defined contribution savers. The newsletter notes that the requirement to take advice before most DB benefits can be transferred and accessed may prevent pension scheme members from considering their options.

“Whilst members may be interested in exploring these flexibilities, they may be put off by the need to find a financial adviser willing to provide advice and the cost of the advice,” it states.

Following a freedom of information request, the Financial Times reported in May that Financial Conduct Authority figures showed that the amount of pension cash transferred out of DB funds to DC plans jumped to £20.8bn in 2017 from £7.9bn in 2016.

Company to cover cost

The Luxfer newsletter states: “The offer gives members the opportunity to discuss their options with a financial adviser engaged by the company and whose costs will be met by the company.”

However, this offer by the company to meet the cost of the exercise is available for only a short time. In future, members will be able to request full details of their options either at retirement or on reaching age 55, but will have to arrange and pay for the necessary advice.

The scheme has made it clear that members will not be affected if they choose not to transfer out after having received advice from the IFA – they will remain entitled to benefits from the scheme in the usual way.

Simon Taylor, partner at consultancy Barnett Waddingham, said employer-hired IFAs are “a very good idea, and it’s something we’re seeing a lot more of… not just coming from the company side but the trustee side as well”.

He noted concerns in the industry at the large and attractive sums paid out in transfers, especially where these are invested into multi-layered funds with lots of expenses and contingent fees.

Trustees have a duty to check that members are taking advice, Taylor said. They should ask members who they got the advice from and check the adviser is on the Financial Conduct Authority’s register and qualified to give transfer advice.

“What we’re seeing is a lot of companies and trustees actually doing some due diligence on some of the IFA market,” Taylor said.

This can reassure the company and trustees that the adviser is going to give members proper advice and will not be putting people into unsuitable funds that are difficult to get out of.

Making one adviser available to all members also means the adviser can become familiar with the scheme.

“One of the hardest things in any transfer is getting the adviser up to speed on what the members are giving up,” Taylor said.

The FCA requires advisers to carry out a transfer value analysis report, but getting the information to do that can be problematic.

With one advisory firm in place, Taylor said they can usually carry out the analysis more easily: “You only have to give them the information once, and they can programme up all their systems, they know what the benefits are.”

MNT appointment process under review

The scheme is also reviewing the way in which it appoints MNTs. There are currently four trustees on the board, but a vacancy exists for an MNT.

The newsletter notes that “the shape of the plan membership has changed significantly in recent years”, adding that the level of knowledge and understanding trustees are expected to have about funding and investment has increased over the period.

The Pensions Regulator has ramped up its focus on scheme governance in recent years. In 2017, it launched a campaign directed at trustees and their advisers, a year after the publication of its 2016 discussion paper, 21st Century Trusteeship and Governance.

More recently, the regulator has set out its “quicker, clearer and tougher” approach to driving up standards in the pensions sector.

The Luxfer pensions newsletter notes that the existing appointment processes for MNTs were established more than a decade ago, and “need reviewing before the appointment of an additional trustee can be considered”.

The review was due to be undertaken by the trustees during the first half of 2018, with the objective to appoint an additional MNT by the end of the year.

The scheme did not comment on how it currently appoints MNTs, or whether the review has been completed.

Selection or election?

Many pension funds have opted for selection panels instead of an election process over the years. Last year, Pensions Expert reported that the Royal Insurance Group Pension Scheme was switching to a selection panel for MNT appointments.

David Brooks, technical director at consultancy Broadstone, said deciding between a selection or election process depends on the type of scheme and what they want to achieve.

“I’m quite a strong advocate of selection panels,” he said, but added that “ballots can be good if they’re run well, and you’ve got a well engaged membership”.

Brooks said: “If you’re really targeting a particular skillset, then I think a selection panel is probably the most effective way of getting to a particular person.”

He likened the process to recruiting for a job, where the recruiter would go out and try to find people who fit a certain role.

Brooks agreed that “the nature of being a trustee has changed massively over the last 10 years”.

He said the MNT appointment process should be reviewed at least every three to five years, and especially whenever a vacancy comes up.

But “in practice, I find that most boards I work on review things annually – it’s just a regular thing”.

Trustees disappointed by multi-asset manager

The Luxfer scheme has also switched multi-asset managers due to performance concerns. The newsletter said assets managed by Standard Life Investments “had a disappointing year”.

According to the scheme’s 2016 annual report, it was invested in the Standard Life Gars Fund.

The fund currently has a three-year annualised return of -1.97 per cent, according to Morningstar data.

The newsletter showed that “the trustees met the manager to discuss the reasons for the performance but saw little to persuade them that performance would improve”.

As a result, the trustees agreed to transfer those assets to “a similar multi-asset fund” managed by Aviva Investments.

An Aberdeen Standard Investments spokesperson said: “We do not comment on individual client decisions.”

There has been a big trend for investing in multi-asset funds over the past few years. According to Spence Johnson, a Broadridge company, the multi-asset market in Europe encompasses ¤1.8tn (£1.6tn) in assets, more than 9,800 funds and thousands of segregated mandates.

But that demand may be cooling. David Will, senior investment consultant at JLT Employee Benefits said the number of new mandates is “tailing off a bit – it’s waning”.

According to Will, “that’s primarily because most schemes that have wanted to make an allocation to a multi-asset fund have made that allocation”.

Rather than new mandates, “most of the search activity we’re asked to undertake by clients is really looking to either provide diversification across different styles of multi-asset funds [or are] where clients have been disappointed with performance, and they’re looking for a replacement manager”, Will added.