Steve Webb, partner at LCP said: “The current crisis could well lead to a surge in interest amongst the over 55s in accessing their DB pension. The need for affordable, high quality advice is likely to be greater than ever, and it is right to crack down on firms who have given poor quality advice. But forcing members to pay high upfront charges for advice will act as a barrier. For those who do find thousands of pounds up front for advice there a risk that they will then be determined to go ahead with the transfer even if it is not in their best interests. Successful regulation would have left members with a wide choice of quality independent advisers. Instead, poor conduct by some advisers and poor regulation means that the DB transfer advice market is simply not working”
Steven Cameron, Pensions Director at Aegon said:
Contingent charging
“The FCA’s decision to ban contingent charging is no surprise but runs the real risk of further reducing access to advice on DB transfers at a time when the coronavirus pandemic arguably means for some individuals, this is needed more than ever. We fully support the FCA’s desire to ensure DB advice is of a consistently high quality, and reflective of the current uncertain environment. In Aegon research shortly before the coronavirus crisis, an overwhelming 84% of advisers said a ban on contingent charging will reduce access to advice. Some individuals simply can’t afford to pay upfront, even where transferring might have been in their interests, and with advice legally required ahead of transferring, the ban means some will be unable to explore their statutory right to transfer.
“Not all advisers support contingent charging and many do accept that it could create the potential for bias in recommendations. But it’s regrettable that the FCA and industry couldn’t have found a way of addressing this conflict of interest.
“Clarification on those individuals eligible for ‘carve outs’ from the ban are welcome and we hope this may alleviate the issues for some individuals. We may see an increase in the number of individuals eligible on grounds of serious financial difficulty as a result of the financial implications of COVID-19. We also support a carve out for those with life shortening medical conditions and welcome the move to allow this to be self-certified rather than requiring specific evidence from a medical professional.
“However, on top of these new FCA requirements, the supply of advice on DB transfers is already under huge threat because of the increasing difficulty advisers face in obtaining Professional Indemnity Insurance. We hope the FCA will keep this under review and seek solutions to make sure the market can still operate.”
Abridged advice
“We have always supported the FCA’s abridged advice concept and we hope advisers will look at this in detail to see if it can help them ‘filter out’ DB members not suited to transferring. However, it is yet to be seen if this approach can be made sufficiently cost-effective for its wide-spread use, particularly as it must still involve a Pension Transfer Specialist.”
Craig Rimmer, Policy Lead: Master Trusts, PLSA, said: “The PLSA has consistently called for a ban on contingent charging. With its model of only paying the adviser if the pensions transfer goes ahead, contingent charging has been a perverse incentive that has resulted in far too many unsuitable DB transfers happening.
“With savers vulnerable to making hasty financial decisions during the uncertainty arising from the pandemic, our disappointment is that the ban is not happening even sooner. It would be better to raise the quality bar for pension transfer advice now rather than wait until 1 October.
“We support the FCA’s view that workplace pension should be considered first as a destination for any pension transfer – with generally lower charges and default investment strategies suitable for the majority of people they provide a straight-forward and affordable path for advised savers. We are pleased to see the FCA’s new package of measures to address the issues around advice for DB transfers and believe this is an important step to ensuring savers are given the best chance of achieving a good income in retirement.”
Comments from Ryan Markham, Partner, Hymans Robertson
“The FCA’s confirmation that contingent charging for advice will be banned, in all but limited circumstances of serious financial hardship or ill health is largely anticipated. The findings of the FCA’s continued ongoing review into the DB advice market have highlighted the need for the FCA itself to act. It’s helpful, given everything else that is going on in the world, the FCA has given advice firms until 1 October before the ban is effective.”
“This ban on contingent charging should help provide a much needed increase in confidence to the market and, importantly, to consumers. The impact of Covid 19 is likely to be far and lasting on jobs, finances, sponsor covenants and health and over the coming months and years we expect the need for quality DB transfer value advice only to continue to increase. It remains to be seen how members most in need of advice, but not meeting the FCA’s limited circumstances, will be able to pay material upfront costs once the ban is in force. The FCA is allowing advisers to provide a lighter touch advice service where it is clear that a transfer won’t be in a member’s interest. However, it is not clear how many advisers will offer this service and indeed whether members will be willing to pay for it. Consumer education on the value and importance of quality advice will be key.”
“We remain strong advocates of trustees and sponsors facilitating quality financial advice for their members. A ban on contingent charging in conjunction with an increase in demand from individuals makes the business case here even more compelling. Through facilitating financial advice, trustees and sponsors can ensure members have access to quality advice which is priced transparently and delivered affordably to members through economies of scale. This approach can ultimately help deliver better member outcomes.”
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