Keep Fees Fair: Letter to the Work & Pensions Committee

Keep Fees Fair: Letter to the Work & Pensions Committee

Financial Adviser has written to the chairman of the Work and Pensions Committee, Stephen Timms MP, to outline the issues facing advisers as a result of the pension freedoms.

The letter read:

Dear Mr Timms

Might I ask whether you, with your WPC hat on, be interested in the harm to consumers and advisers that has been caused as a by-product, largely, of the 2015 Pensions Freedoms brought in by Mr Osborne?

As you know, the pension freedoms brought with it their own problems - the seemingly inexorable rise in pension scams, the problems with pensioners with small DB pots not being able to get advice on what to do with their money, and of course the subsequent DB transfer scandals - for example, the British Steel Pension Scheme. 

Largely as a result of these problems - created by ill-conceived policy and not by the pensions advisory industry - there has been a mass move to curtail bad outcomes for consumers. 

Unfortunately what has transpired is that all financial advisers are being hit with punitive hikes in their regulatory levies to compensate for the fact there may (note 'may') be more pension transfer complaints in the future. 

Many advisers have never advised on pension transfers. Many have done so only rarely. Yet these are being hit with Financial Services Compensation Scheme levy increases of 88 per cent, 90 per cent and in some cases, 102 per cent on last year's costs. These are set by the Financial Conduct Authority and have risen nearly every year. 

This comes hot on the heels of five years of eye-watering professional indemnity insurance increases (as a direct result of pensions legislation), and - of course - the financial difficulties that we have all suffered as a result of Covid-19.

What this means is that many advisers are now facing having to choose between paying staff or paying FSCS bills (while retaining their necessary capital buffer in order to operate under FCA rules). 

Some have had to ask clients to help cover the cost of rising fees, or simply raise the cost of their advice.

Even Charles Randell, chairman of the FCA, admitted earlier this year the levy costs were too high, but he said they would rise anyway because it would be a big task to change the fee structure.

This is despite trade bodies and membership organisations such as the Chartered Insurance Institute, the Personal Finance Society, and the Association of Mortgage Intermediaries offering different but very practical ways of structuring a levy, so the burden does not fall disproportionately on those advisers who have never done wrong by their pension clients. 

Moreover, if these advisers - dozens of whom are writing into FA each week - are forced out of the industry, from where will hundreds of thousands of pensioners and people at-retirement get their independent, professional, pensions advice? 

The pensions gap will grow; the advice gap will yawn further and this could all be rectified if the regulators agreed to a reform of the FCA and FSCS's fee structure.