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