The chair of the Work and Pensions select committee has branded the Financial Conduct Authority's (FCA) decision not to pursue a contingent charging ban at this time as a failure to take effective action.
Independent Labour MP Frank Field (pictured) said the FCA's decision published this morning (4 October) meant pensioners continued to be "swindled out of their savings", as he called for urgent rules from the regulator on this matter.
Mr Field said: "Having seen the fate that befell British Steel pensioners, the committee called on the FCA to take urgent action to ban contingent charging.
"Instead, the FCA has buried this in the long grass, even as unscrupulous advisers are circling like vultures around consumers. It’s time the FCA took decisive action to prevent another misselling scandal."
In its 58 page-long policy statement Improving the quality of pension transfer advice published today, the regulator said contingent charging was a "complex area" and poor advice on defined benefit (DB) transfers had a number of causes.
The FCA said its initial analysis showed contingent charging was not the main driver of poor outcomes for customers but because of the significance of this issue to "all stakeholders", the regulator said it would carry out further analysis and consider action if appropriate.
Other pension experts were also disappointed with the lack of a decision in this matter.
Jonathan Camfield, partner at pension consultants LCP, said: "There are significant concerns around some of the contingent charging practices of IFAs, concerns that are increasingly being expressed by our clients, trustees and sponsoring employers of DB schemes.
"It is important that the FCA tightens rules in this area as soon as possible, to protect member interests."
Nevertheless, the majority of specialists welcomed the stance taken by the regulator.
Rachel Vahey, product technical manager at Nucleus, said: "The jury is still out when it comes to a ban on contingent charging.
"Instinctively, the regulator is concerned that only charging for advice if a transfer goes ahead will lead to biases creeping in.
"However, the FCA says it is still looking for a direct link between contingent charging and bad outcomes and so it plans to investigate this issue further. The industry discussion shows this is a difficult problem to solve, so it’s no surprise the FCA is taking a little more time to get it right."
Contingent charging means a client only pays for the advice if they go ahead with a transfer, which, the FCA said, raises the risk of a conflict of interest.
In the case of pension transfers, the adviser won't get paid unless the pension is transferred, which may lead to the client giving up valuable benefits such as a lifetime of secure income when it may not be in their best interests.
The Personal Investment Management & Financial Advice Association (Pimfa), which is against a ban on these fees, welcomed today’s outcome.
Simon Harrington, senior policy adviser at Pimfa, said a ban "would have a detrimental effect on a large proportion of people who would otherwise have no way to access good quality, regulated financial advice".
He said: "We think that it is right that the FCA should continue to review this issue and will assist them with any input they require, but remain of the view that contingent charging can be one of many symptoms of poor practice rather than the underlying cause."
Sir Steve Webb, director of policy at Royal London and former pensions minister, said it was "always simplistic" to say that all the problems around transfer advice at British Steel and elsewhere were due to contingent charging.
He said: "It is good that the FCA has shied away from a knee-jerk reaction such as abolishing contingent charging."
Andy Boyt, pension transfer specialist and freelance consultant, also agreed with the watchdog’s stance.
He said: "One of the FCA’s central tenets is to ensure consumer groups are not discriminated against in terms of access to services including advice.
"The issue of contingent charging has been conflated with poor advice due to the activities of some rogue advisers, which is unfair on those who have behaved ethically whilst still employing a contingent model.
"A ban wouldn’t prevent bad or unsuitable advice from the determined adviser and could also be 'gamed' as the FCA themselves have rightly highlighted."
maria.espadinha@ft.com
