City watchdog delays changes to final salary pension transfer rules

One expert described the delay in banning financial advisers from getting paid only when a client moves a final salary pension pot as ‘very disappointing’.

Proposals to ban financial advisers from getting paid only when a client moves a final salary pension pot (a practice known as contingency charging) have been delayed by up to six months.

No reasons were given for the delay; instead, the Financial Conduct Authority (FCA) quietly updated its position on the matter on its website to say that its final decision on whether to ban contingency charging will be made in the second or third quarter of 2020. Its previous stance was that a decision would be made in the first three months of this year.

The rise in final salary or defined benefit (DB) transfers since the pension freedoms were introduced five years ago has been labelled by some, including the Work and Pensions Committee (WPC), as a “major mis-selling scandal”.

The WPC has previously called on the FCA to ban contingency charging, which it sees as a “key driver” of poor advice as it creates an incentive for advisers to recommend that their clients transfer out, whether it is the best option for them or not. 

Anyone looking to transfer out of a defined benefit pension scheme needs to get financial advice before doing so if their pot is worth more than £30,000.

Commenting on the delay, which could potentially be as long as six months, Clive Harrison, partner at pensions consultants LCP, said: “The DB advice market is very diverse, with a mix of high-quality advice sitting alongside cases where the FCA finds that members have clearly been given unsuitable advice. 

“If the FCA believes that the consumer detriment from poor-quality advice runs into billions of pounds, it is very disappointing that measures designed to improve the advice market have been delayed. 

“Given the particular concerns in the current Covid-19 environment about pension scheme members being vulnerable to scammers, and poor-quality advisers taking advantage of members’ fears, it is vital that consumer protection measures are maintained as far as possible, despite the present situation.”

Simon Harrington, senior policy adviser of public policy at PIMFA, took a different view in describing the delay “as no surprise”. He added: “There are far more pressing considerations in the market right now – specifically how certain businesses even stay afloat – than the introduction of measures, which we still maintain will have little to no bearing on the quality of pension transfer advice.

 “We have called for them to show regulatory forbearance and the decision to delay the publication of any policy statements is in keeping with this. This is in keeping with a regulator who is willing to listen and it is something which we welcome.”

The FCA’s stance is that the default position should be that a transfer is probably not in a person’s best interest. This is certainly the case for most people, but there are reasons when a strong case can be made to consider a transfer, as we explain in this article.