Pension transfer ruling is 'stopping advice', consultant claims

Pension transfer ruling is 'stopping advice', consultant claims

DB pension transfers

"Currently most financial advisers advising on DB pension transfers operate using a contingent charging model," he said. "Advice is initially ‘free', but charges are deducted from funds if an individual goes ahead and transfers from their DB scheme.

"With the average transfer value paid now over £400k (see LCP analysis) and advice charges of 2%-3% these fees can typically be £10,000 for many of the 69% of individuals the FCA found to be advised to transfer (and typically no fees for most of the remaining 31%). Clive Harrison, Partner at Lane Clark & Peacock

Harrison states that the FCA are proposing to remove this "obvious conflict of interest" by banning these charging structures (except where a member has evidenced shortened life expectancy or is in serious financial hardship). But adds that contingent charging isn't working and is resulting in significant losses for consumers.


"The FCA estimate that the harm created by unsuitable DB transfer advice is up to £2bn each year and we agree the loss is of this order. We therefore support the [FAC's] consultation, but I do have concerns that the ban will severely restrict the availability of advisers and number of members taking advice.  After all, good advice is a good thing.

"After this proposed ban the FCA estimate that those financial advisers that remain in the market are likely to be charging fees in the region of c£3,000 for this advice.  If a typical member was considering whether a transfer might be in their interest, it would seem unlikely they would be willing to commit to pay £3,000 unless they were confident a transfer might be suitable (otherwise they might perceive taking advice as paying £3,000 to be told to do nothing)."

Harrison concludes that it is likely only those members who are particularly keen to transfer, think that they are likely to be suitable and have sufficient disposable cash to pay the fees will generally take up advice.  "As a result, some members for whom a transfer might be suitable will lose out," he says.

"Given the likely impact of the FCA's proposals on availability and affordability of financial advice, and strong industry calls for schemes to take a more active role in supporting their members in good decision making, we can only see this encouraging trend continuing."