Pen­sion savers face ‘wasted ad­vice costs’ thanks to watch­dog’s new rules

The Sunday Telegraph - Money & Business - - News And Comment - Sam Brod­beck and Laura Miller

Ator­rent of new rules im­posed by the City watch­dog is ex­pected to add thou­sands of pounds to the al­ready steep cost of mov­ing a “fi­nal salary” pen­sion.

Around a quar­ter of a mil­lion peo­ple are thought to have swapped guar­an­teed pen­sions for cash. Savers have been tempted by deals that have meant, in some cases, that a pen­sion set to pay £35,000 a year in re­tire­ment can be trans­ferred for as much as £1m.

Govern­ment rules state that any­one who moves a pen­sion pot val­ued at £30,000 or more must take reg­u­lated fi­nan­cial ad­vice.

There is a dearth of ad­vis­ers work­ing on trans­fers, which means costs are al­ready high – of­ten 1pc or more of the value of the pen­sion.

Now prices are ex­pected to rise fur­ther be­cause of rules an­nounced by the Fi­nan­cial Con­duct Author­ity (FCA), the City reg­u­la­tor, last week. Many in the pen­sion in­dus­try wanted the watch­dog to de­velop a “triage” sys­tem to help peo­ple weigh up the ben­e­fits of a trans­fer with­out hav­ing to ar­range a costly ad­vice ses­sion.

How­ever, the FCA’S guid­ance now sug­gests that cheap or even free guid­ance is not ap­pro­pri­ate for pen­sion trans­fers, which are ir­re­versible.

Sir Steve Webb of Royal Lon­don, the pen­sion com­pany, said the watch­dog should amend reg­u­la­tions so that ad­vis­ers could give an “ini­tial steer” to “save peo­ple thou­sands in wasted ad­vice costs”.

Si­mon Har­ring­ton of Pimfa, the ad­vice in­dus­try’s trade body, said he was dis­ap­pointed by the guid­ance.

He said that while the rules would “im­prove the qual­ity of pen­sion trans­fer ad­vice”, the de­ci­sion not to al­low ad­vis­ers to give cheap or free feed­back was “the wrong one”. The FCA has con­ceded that its re­quire­ments could mean “some costs may be passed to con­sumers”.

It had been thought that ad­vis­ers would be banned from so-called “con­tin­gent charg­ing”. This is where savers are billed only if the trans­fer goes ahead. The Work & Pen­sions com­mit­tee of MPS ar­gued that such fee mod­els en­cour­aged ad­vis­ers to rec­om­mend that some­one ditch a valu­able com­pany pen­sion. But the reg­u­la­tor backed away from a ban and said it need to un­der­take more work.

Frank Field, the com­mit­tee chair­man, said: “Pen­sion­ers were swin­dled out of their sav­ings yes­ter­day, are be­ing swin­dled out of those funds to­day and still will be to­mor­row. Yet the FCA fails to take ef­fec­tive ac­tion.” The is­sue was

‘Pen­sion­ers were swin­dled out of their sav­ings yes­ter­day and still will be to­mor­row’

brought to the fore last year when it emerged that hun­dreds of mem­bers of the Bri­tish Steel pen­sion scheme had been con­vinced to give up their com­pany pen­sion by rogue ad­vis­ers. One firm, Ac­tive Wealth, ad­vised more than 300 steel­work­ers be­fore the FCA stepped in. It has since been dis­solved.

Mr Field said the FCA’S re­fusal to ban con­tin­gent charg­ing left un­scrupu­lous ad­vis­ers “cir­cling like vul­tures around con­sumers”.

Last year the FCA re­viewed 88 cases in which an ad­viser had rec­om­mended some­one trans­fer out of a pen­sion. It said this had been the right ad­vice in fewer than half of the ex­am­ined cases. The reg­u­la­tor has es­ti­mated that around 100,000 peo­ple a year are trans­fer­ring pen­sions worth up to £30bn in to­tal.

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