The Financial Conduct Authority (FCA) is addressing continued problems in the pensions transfer advice market with a package of reform proposals
The proposals cover contingent charging for pension transfer advice, the FCA’s work on non-workplace pensions and the Retirement Outcomes Review.
The FCA is proposing to ban contingent charging – in which financial advisers only get paid if customers transfer their pensions from a defined benefits scheme – unless consumers have ‘specific circumstances that mean a transfer is likely to be in their best interests’.
In cases where financial advisers stand to receive ongoing fees, sometimes for 20 to 30 years, following a pension transfer, the FCA would require advisers to demonstrate why a recommended pension scheme would be more suitable than a customer’s workplace scheme.
The proposals follow an FCA consultation in 2017 on ways to ensure that consumers received advice that covered all relevant factors.
Christopher Woolard, executive director of strategy and competition at the FCA, said the proposals should help address ongoing problems with pensions transfer advice. ‘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,’ he said.
The proposals would also control how pensions advisers deliver advice including options to give low-cost, abridged advice for customers who should not transfer, greater transparency on charges and guidelines on how advisers can show that customers have understood their advice.
Meanwhile, the FCA has found that too many consumers are not sufficiently engaged in the decision-making process around pensions and are unaware of the impact of charges.
Setting out its views on competition in non-workplace pensions, it said products are often too complicated for consumers to understand.
It has set out potential measures to protect consumers including requiring providers to offer investment solutions and improve the transparency of charges.
The FCA is asking for feedback on workplace pensions prior to issuing a formal consultation on new rules for the market in 2020.
The FCA has also set out final rules and guidance on remedies coming out of the Retirement Outcomes Review, saying that this represents a ‘significant intervention’ to help consumers make retirement investment decisions.
The consultation on pension transfer advice closes on 30 October 2019.
Tom Reeve | 31-07-2019