A combination of the pension freedoms and rising values on defined benefit transfer values was always going to lead to a surge in people seeking to ditch their final salary schemes.
I know plenty of pension trustees who were having open conversations about moving out of the schemes they were helping to oversee.
In 2017, £36.8bn was withdrawn from pension schemes – a startling rise on previous years.
It would be wrong to blame advisers for this. Pension schemes are equally responsible, offering such generous terms that their members could hardly resist taking the cash.
Generally, the transfers seem to have been working well – not least because of the great level of diligence most advisers have to shoulder.
But then along came British Steel, which deeply tainted everything. The work of the majority once more became tarnished by a handful of rogues.
My gut feeling, based on the rhetoric from the increasingly light-touch FCA which is all about outcomes, is that contingent charging will remain.The shadow of this debacle hangs over the Financial Conduct Authority's (FCA’s) review of DB transfers.
Its recommendations seem to develop a well-measured approach to advice on transfers (though I have little doubt they represent another headache in terms of compliance).
What this means, though, is that the FCA has been accused of pulling its punches, particularly in failing to ban contingent fees. The MP Frank Field, in particular, was angry that they were not banned.
The FCA seems caught between believing that contingent fees are the Devil’s work, and wanting to ensure everyone has access to advice.
We’ll see how this plays out. My gut feeling, based on the rhetoric from the increasingly light-touch FCA which is all about outcomes, is that contingent charging will remain. If that happens then transparency will be everything.
What strikes me though is that the FCA’s work seems to have a number of missing links. It’s very concerned about accessibility of advice, but seems to be blind to the ludicrously high excesses advisers face on their PI cover for undertaking pension transfer advice.
Not only are these restricting the market, but they are putting up the cost of advice. For example, last week I met someone who told me the excess on the PI cover for doing this work was close to £100,000.
And there are many other questions to be answered about the FCA’s work. Are they overstating the value of an annuity in today’s money? Certainly the valuation of DB schemes is way out of kilter with the reality of the money markets.
And why are pension schemes offering transfer values that are lower than the assumptions the FCA is working with?
There seems to be a chronic misalignment. One reason is that the rules for financial advisers are governed by one regulator, and the behaviour of the pension schemes by another.
But there is a great need for the pensions and financial regulators to see eye-to-eye.
Properly regulated advice should be safe and affordable for consumers. But it is up to the regulators to create a business environment that is conducive to firms thriving – not killing them off altogether.
Too toxic for the Tories?
Cutting higher-rate tax relief on pensions (as we are led to believe HM Treasury is proposing) wouldn’t just kill off pension saving for reams of the population – it would be a nightmare to administer.
Why would you bother to save into a pension if you feared you might be a higher-rate taxpayer in retirement?
Cutting higher-rate relief means that for every £1 you earn, you get 80p in a pension and pay 20p tax. Then in retirement, that same 80p is taxed again at 40 per cent.
Even assuming you take the tax-free lump sum, this leaves you paying a total of 44p tax on your original £1.
In an Isa you’d only pay in 60p, but at least you’d get the same 60p out. Why bother? This would be so politically toxic for the fragile Tories that there is no way it will happen.
Property pay day
Uh-oh. I smell a whiff of another crackdown on property coming – this time on rent-a-room relief.
This £7,200 a year perk for lodgers has been abused by some landlords, HM Revenue & Customs seems to think.
And so in a finance bill this year we can expect some kind of residency test which will see whether landlords are living in the properties where they rent out a room.
Anyone making money from property is once again under the spotlight of HMRC.
James Coney is money editor of The Times on Sunday
