The Department for Work and Pensions Select Committee has announced an inquiry into the role of contingent charging on pension transfer advice.
It is inviting interested parties to submit written evidence on this issue by January 31.
This inquiry follows the select committee’s investigation into the poor advice given to many members of the British Steel Defined Benefit Pension Scheme.
Under pension rules anyone transferring a DB pension worth more than £30,000 must receive independent financial advice. But these advisers are currently allowed to use a contingent charging model, which means they will only be paid – or be paid significantly more – if the recommendation is to transfer assets.
The Work and Pensions Select Committee has previously recommended that this charging structure should be banned for DB pension transfers. However the FCA has stopped short of imposing a ban on contingent charging saying it needs to “carry out further analysis of the issue”.
In noted there was a lack of evidence linking contingent charging to unsuitable advice and bad outcomes.
The Select Committee says that in order to help the FCA with its next steps it wants to hear from consumers affected by this issue.
Chair of the committee, MP Frank Field says: “The FCA has confirmed to me that it shares many of the Committee’s concerns about the scourge of contingent charging. But to tackle this, and to protect consumers from the vultures circling around their pension pots, it needs more proof of what is really happening to people.
“It has explained to me the complexities of contingent charging, and how it needs to carefully consider its possible interventions so as not to cause unintended harm, particularly to vulnerable customers.
“The FCA has said it would welcome the Committee’s help to find out more, and we’ll be happy to do everything we can to make sure we get the right safeguards in place.”
Aegon pensions director Steven Cameron urged the committee to keep an open mind on contingent charges. He says: “Contingent charging can create conflicts of interest, but an outright ban should be a last resort option as it will exacerbate the advice gap.
“Regulatory policy shouldn’t be based on stamping out isolated instances of bad practice, particularly if this could constrain how the vast majority of professional advisers serve their clients.”
Cameron adds that the first step should be to explore if the specific conflicts around DB transfer advice can be managed effectively. He adds: “The heightened profile of DB transfer advice suitability should in itself reduce the likelihood of ‘bias’ towards advising to transfer. Furthermore, compliance departments and checks undertaken by pension transfer specialist provide further safety measures.”
