Andrew Tully, Technical Director at Canada Life said: ‘It is almost impossible to show a link between contingent charging and unsuitable advice. But advisers only being paid if a transfer proceeds creates a conflict of interest and a perception they may be more inclined to recommend a transfer. While it is right we have strong controls and scrutiny of transfers, we need to be careful not to demonise all transfers and those involved in them. Otherwise we run the risk of stopping people exercising control over their pension savings, and preventing some from achieving the best outcome.’
Reaction from Steve Webb, Director of Policy at Royal London: “It is vital that the consumer comes first when it comes to the rules around DB transfers. Some of the FCA’s proposed changes will help to reduce the risk of consumers transferring into poor value destinations for decades after a transfer and are to be welcomed. Benchmarking against transferring into a workplace pension scheme will provide a useful safeguard. The ability of advisers to offer simpler ‘abridged’ advice will also help to reduce costs to consumers.
But if contingent charging is to be banned, the FCA and the Government need to find new ways of making transfer advice affordable and available. If the FCA does not have the power to enable people to claim advice costs out of their DB pension rights then the Government needs to legislate to make this a right. Consumers should also have a right to a partial DB transfer to reduce the all-or-nothing nature of too many transfers. Until now, FCA actions have reduced the supply of DB transfer advice and raised the cost, driving some high quality advisers with unblemished records out of the market altogether. This has to change.”
The FCA propose a package of measures including:
• banning contingent charging for DB pension transfers and conversions, except for specific groups of consumers with certain identifiable circumstances
• except for these exceptional cases, advice firms will have to charge the same amount, in monetary terms, for advice to transfer as they charge when the advice is non-contingent
• The requirement will incorporate all related and associated charges such as advice on where any transferred funds will be invested and implementation charges
• FCA sets out exceptions in its draft rules which includes those who have a specific illness or condition resulting in a materially shortened life expectancy, and those who may be facing serious financial hardship. These people may continue to be advised on a contingent basis.
• FCA reiterates any triage service should be purely educational
• allow a short form of advice (abridged advice) which will act as a new mechanism to filter out those consumers for whom a pension transfer or conversion is unlikely to be suitable, before they pay for full advice. FCA still expects the adviser to conduct a full fact-find and risk assessment. However it means consumers may receive a recommendation not to transfer without an adviser having to collect detailed scheme data, undertaken an Appropriate Pension Transfer Analysis (APTA) or provide a Transfer Value Comparator (TVC). Removing these elements from the advice process should enable abridged advice to be provided cost-effectively. This should help maintain initial access to advice
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