Damian Fantato  

Charging conundrum has no perfect solution

Damian Fantato

Damian Fantato

The question of how retirement income advice should be paid for is a hot-button issue.

For a start, pension freedoms increased the number of options available and meant more people need to take advice.

This has been compounded by the fact that pension transfer values rocketed in 2016 and have remained stubbornly high. 

The use of contingent charging – where the saver only pays if the transfer goes ahead – has become controversial because of its supposed role in the British Steel debacle, which saw hundreds of steelworkers transfer their final salary pension into something rather more suspect.

Now the Work and Pensions Committee is looking into whether contingent charging should be banned. But the truth is much more complex.

If contingent charging was banned, a disreputable adviser might still be incentivised to go ahead with a transfer because of the ongoing fee they might get from the investment.

Ultimately, the whole issue of how retirement income advice is paid for needs to be looked at comprehensively.

The Financial Conduct Authority’s data shows drawdown sales are now twice those of annuity sales, with 37 per cent of them being made without advice, which is potentially just as dangerous as the spate of defined benefit transfers.

The government has attempted to address this by creating a pension advice allowance – which allows savers to take up to £1,500 from their pots to pay for advice – but take-up has been dismal.

Perhaps a more generous, and better advertised, allowance would be better, or one that is subsidised somehow.

Ultimately, there may be no perfect solution to this issue. Like with many aspects of the pension freedom reforms, we are trying to fix a car while it is travelling at 70mph downthe motorway.