The government has turned down a request from a Labour MP to change the professional indemnity insurance (PII) rules for Independent Financial Advisers (IFAs). It says the current model is “working well” for most firms.
Stephen Kinnock, MP for Aberavon, called for the change following a pension scandal involving steelworkers.
In 2017 members of the British Steel Pension Scheme (BSPS) were asked to transfer their defined benefit pensions as part of a restructure of the BSPS by Tata Steel.
Members could enter a new British Steel Pension Scheme, take Pension Protection Fund benefits or transfer their pension to a private provider.
Some steelworkers feel they were targeted by so-called ‘vulture’ financial advice firms, which mis-sold them transfers into private schemes. Many workers claim they lost thousands in pensions benefits. Advice firms involved in the scandal have since gone into liquidation.
Stephen Kinnock now wants the PII rules changed to provide greater protection to clients of IFA firms. He would like the government to mandate minimum terms of cover, ban certain exclusions and offer higher limits of cover.
At present, IFAs need to have E1.25 million PII cover for a single claim and E1.85 million in total for claims. However, insurers are permitted to exclude certain classes of business, such as pension transfers, from cover. Where cover is excluded IFA firms must by regulation retain additional capital of at least £20,000.
Stephen Kinnock says this is inadequate and wants the government to adopt a mandatory approach like the solicitors’ PII rules. Solicitors cannot have non-standard exclusions in their policies and must hold minimum cover of between £2m and £3m for any one claim.
“It is outrageous that so many hard-working steelworkers who have been looking forward to retirement are in this situation where they think they may have been ripped off,” Mr Kinnock told FT Adviser. “One of the biggest problems with this is that there seems to be no safety net through proper PI insurance. It is vital now that all of the loopholes get closed,” he added.
But, John Glen, economic secretary to the Treasury has turned down the request. “PII works well for the majority of firms, apart from in exceptional cases of large-scale mis-selling that cause firms to collapse,” he wrote in a letter to Mr Kinnock. He warned that mandating cover could result in PII becoming either unavailable or unaffordable.
James Burgoyne, Director – Claims & Technical, Brunel Professions said: “Comparisons with the minimum terms cover available to solicitors often fail to identify that the aggregate of premiums paid by solicitors is much higher than that of most professions, and therefore creates a larger financial pool to back the wider cover required. It also has to be said that the solicitor’s PI market has suffered significant problems in the past two decades, and the breadth of cover demanded has arguably undermined stable provision of cover to the profession.”
News about the government’s decision has been published by FT Adviser. Reports on Mr Kinnock’s campaign and the background to the BSPS scandal have been published by the BBC, New Model Adviser and FT Adviser.
Brunel secures competitive professional indemnity insurance cover for IFAs. To find out more visit the Brunel website or call Mark Sommariva on 0203 475 3275.