City watchdog moots measures to improve quality of pension transfer advice

Measures to improve pension transfer advice and drive down the number of consumers giving up valuable guaranteed benefits when it is not in their interests have been proposed by the City regulator.

They include a proposed ban on contingent charging for pension transfer advice, to protect customers from conflicts of interest. Contingent charging happens when firms charge more for advice to transfer than advice not to transfer.

The Financial Conduct Authority (FCA) is concerned about the potential for this creating a bias towards recommending a transfer.

The ban would apply unless consumers have specific circumstances which mean a transfer is likely to be in their best interests.

The proposals aim to give better protection to people with “gold-plated” defined benefit (DB) pensions which offer savers a guaranteed level of income.

The FCA also wants to tackle conflicts of interest which arise where a financial adviser advising on a pension transfer stands to receive ongoing fees – which in some cases can be for 20 to 30 years following the transfer.

The watchdog has proposed that advisers will be required to demonstrate why any scheme they recommend is more suitable than the consumer’s workplace pension scheme.

Christopher Woolard, executive director of strategy and competition at the FCA, said: “The FCA’s supervisory work has revealed continued problems in the pensions transfer advice market.

“By making changes to the way advisers are paid for transfer advice and the other changes to transfer advice we are proposing today, we want to ensure people receive suitable advice and drive down the number giving up valuable defined benefit pensions when it is not in their interests to do so.”

The FCA is also looking at how firms can deliver low-cost advice to customers who should not transfer.

The consultation will run until October 30 2019.

Tom Selby, a senior analyst at AJ Bell, said: “More than four years after the pension freedoms were introduced and under mounting political pressure, the FCA has finally decided ‘enough is enough’ on contingent charging for defined benefit pension transfers.

“It has been clear for some time that the regulator is uncomfortable with both the volume of transfer activity and the quality of the advice being given in certain circumstances.”

He continued: “It’s important to note that, while the FCA remains concerned about DB transfers as a whole, there are circumstances when it is in a client’s best interests to give up their guaranteed pension in favour of the flexibility and death benefits available through defined contribution schemes.

“Ensuring these people can access good quality advice is vitally important.”

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