Pensions  

Contingent charging ban would hamper advice gap efforts

 

If the government is serious about expanding access to financial advice, it should not ban contingent charging, according to Simon Harrington

Speaking to FTAdviser Mr Harrington, a senior policy adviser at the Personal Investment Management & Financial Advice Association (Pimfa), explained why the adviser trade body has objected to a contingent charging ban.

The Financial Conduct Authority is currently looking into whether contingent charging should be banned after MPs recommended it should be, saying its use by defined benefit advisers was an "inherent conflict of interest" in the wake of the British Steel Pension Scheme debacle.

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A report by the FCA on whether contingent charging should be banned is expected to be published in the autumn.

But Mr Harrington said: "Our decision to question a ban on contingent charging was largely based on two issues which we do not believe have been addressed by the regulator or government.

"The first is that we do not believe that the removal of contingent charging necessarily removes the conflict of the adviser. If an adviser is minded to advise on a transfer then he or she will anyway.

"The second is slightly more complex, and it is that if the government is serious about closing the advice gap you cannot at the same time remove one of the easiest ways for people to access regulated financial advice.

"It is wrong to assume that somebody who has a DB pot with a transfer value of, say, £600,000 necessarily has the £5,000 in cash to pay for the regulated advice that the transfer will incur. Indeed it might even put people off taking that advice and then getting the wrong outcome.

"We do hold the belief that in the majority of cases a DB transfer isn't in the interests of the individual. You have to assess every single financial decision in the context of that individual's personal characteristics and what we don't want to do is put people off at least exploring the option [...] of financial advice and seeing financial advice as a barrier to them taking their pot and spending it as they would wish. That goes against the fundamental principles of freedom and choice."

Mr Harrington also touched on the pension advice allowance, which was introduced by the Financial Advice Market Review to help more people take financial advice when they decide how to take a retirement income.

The allowance, which came into being in April 2017, allows pension scheme members to withdraw £500 a year tax-free, up to three times in their life, to pay for financial advice but many large pension providers do not offer it at all and there has been little interest from the public.

Mr Harrington said: "It has been quite disappointing to see not many consumers being aware of it and providers not offering it. We understand why consumers don't [use it], because there is obviously no consumer demand for it, however consumers cannot demand something they do not know exists.