The Personal Finance Society (PFS) has warned that the FCA’s pension transfer advice cost template, set out in Annex 1 of its consultation, could mislead consumers.
As part of its consultation paper 19/25, the FCA required all firms who advised consumers using a pension transfer specialist, to produce a one-page summary outlining suitability of the advice given.
According to the FCA, this summary ‘must present these charges alongside the charges associated with the client remaining in their current DB scheme’.
But the PFS has raised its concerns with the FCA in terms of the example table they have created and the potential misleading nature of its conclusions.
Personal Finance Society chief executive Keith Richards says: “We support the FCA’s aim for transparency around costs, and agree with the importance of avoiding potential conflicts of interest around charging for ongoing advice.
“For clients to enjoy the benefits of full transparency, they have to be able to compare different options on a like-for-like basis. This was a fundamental principle of the Retail Distribution Review, which separated out the purchase of advice as a service from the purchase of a product.
“We are concerned that the FCA’s template does not live up to these principles, and could be misleading. It implies that the cost for ongoing advice in a workplace pension is provided free of charge by the pension scheme or the employer, whereas in practice the scheme member is usually required to obtain ongoing advice separately. This is especially true for transfers from a defined benefit scheme to a workplace defined contribution scheme, since some level of ongoing advice will be essential for the vast majority of clients in order to mitigate risks, includingensuring the assets within the client’s overall portfolio are appropriate for their changing needs in retirement, including care need, ensuring their drawdown strategy is tax efficient and ensuring that they are drawing down an appropriate amount in the light of changing investment returns.
“An alternative approach would be for the costs of ongoing advice to be disclosed clearly, in pounds and pence, with a note that the costs of ongoing advice for defined benefit schemes may be lower, due to the fact that the benefits have a higher level of guarantees and is hopefully something that will be addressed as part of the consultation process.”