Financial Conduct Authority
FCA acts to protect consumers transferring out of defined benefit pension schemes
The Financial Conduct Authority yesterday published a package of pension related proposals designed to improve the quality of pension transfer advice, and to help consumers get better value from their pension.
The package includes a proposed ban on contingent charging for pension transfer advice, an update on the work the FCA has been doing on non-workplace pensions and the final policy statement for the Retirement Outcomes Review.
The proposed ban on contingent charging is designed to protect customers from the conflicts of interest which arise where a financial adviser only gets paid if a transfer goes ahead. We have carefully considered the available evidence on the impact of banning contingent charging, including how we can maintain access to advice for those groups of consumers who would benefit from a transfer. Therefore, the proposed ban would apply unless consumers have specific circumstances that mean a transfer is likely to be in their best interests.
The FCA is also looking to address the conflicts of interest which arise where a financial adviser advising on a pension transfer stands to receive ongoing fees – which in some cases can be for 20-30 years following the transfer. The FCA has proposed that advisers will be required to demonstrate why any scheme they recommend is more suitable than the consumer’s workplace pension scheme.
Christopher Woolard, Executive Director of Strategy and Competition at the FCA yesterday said:
“The FCA’s supervisory work has revealed continued problems in the pensions transfer advice market.
“By making changes to the way advisers are paid for transfer advice and the other changes to transfer advice we are proposing today, we want to ensure people receive suitable advice and drive down the number giving up valuable defined benefit pensions when it is not in their interests to do so.”
As well as addressing contingent charging, the FCA is consulting on other measures to change how advisers manage and deliver pension transfer advice. These include introducing abridged advice so that firms can deliver low cost advice to customers who should not transfer, improving how charges are disclosed and setting out how advisers should demonstrate customers’ understanding of the advice.
The FCA consultation will run until 30 October 2019.
The FCA has also published a feedback statement on its Discussion Paper on effective competition in non-workplace pensions. The FCA has found that many consumers are not engaged in pension decisions or aware of charges they are paying. Products and charges are often too complicated to compare – leading to a lack of price competition.
The FCA has outlined a package of potential measures to protect consumers – these could include requiring providers to offer one or more investment solutions, reducing charge complexity and increasing transparency, so that consumers better understand the impact of charges on their savings.
The FCA is seeking feedback and is keen to explore any alternatives to its ideas with interested parties. The FCA will then consult on new rules for non-workplace pension schemes in early 2020.
The FCA has also published its final rules and guidance on the final tranche of remedies arising out of the Retirement Outcomes Review, including the introduction of investment pathways. This is a significant intervention that will help consumers who enter drawdown to make investment decisions that meet their needs in retirement.
Together these changes should help to address the overarching harm identified in our joint pensions strategy with The Pensions Regulator - that people don’t have adequate income, or the income they expected, in retirement.
Notes to Editors
- Contingent charging is when firms charge more for advice to transfer than advice not to transfer, creating a bias to recommend a transfer.
- Consultation Paper 19/25 - Pension transfer advice: contingent charging and other proposed changes
- Feedback Statement 19/5 - Effective competition in non-workplace pensions
- Policy Statement 19/21 - Retirement Outcomes Review: feedback on CP19/5 and our final rules and guidance
- Our previous work on Defined Benefit transfer advice.
- Find out more information about the FCA.
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