Views on a potential ban of contingent charging for defined benefit transfers remain divided following the Work & Pensions select committee's announcement of another inquiry into the practice.
The committee launched its inquiry yesterday (January 7) saying it wanted to hear from anyone who has been affected by contingent charging and from others who have views on banning contingent charging.
The MPs are asking if there is any evidence of unintended harm caused by contingent charging when it is used for pension transfer advice.
They are concerned about the "scourge of contingent charging" and the "vultures" circling around people's pension pots.
The committee had already called on the Financial Conduct Authority (FCA) to ban contingent charging in its report into the British Steel Pension Scheme published last February, saying it considered the practice to be "a key driver of poor advice".
But adviser trade body the Personal Investment Management & Financial Advice Association (Pimfa) warned the removal of contingent charging would not necessarily improve the quality of advice consumers will receive.
Pimfa's senior policy adviser Simon Harrington said: "Removing contingent charging without a viable way for individuals to access advice will ultimately turn people away from an absolutely indispensable part of the retirement planning process.
"Further, it will increase the number of insistent clients who do choose to access advice and in the worst circumstances push them towards poor advice options that will ultimately deliver to their wishes – a transfer regardless of their circumstances."
Similar views were heard from provider Aegon, which urged the MPs to "keep an open mind" on the issue.
Steven Cameron, pensions director at Aegon, said: "Contingent charging can create conflicts of interest, but an outright ban should be a last resort option as it will exacerbate the advice gap.
"Regulatory policy shouldn’t be based on stamping out isolated instances of bad practice, particularly if this could constrain how the vast majority of professional advisers serve their clients."
Others were more amenable to the idea of a ban.
Ryan Markham, partner and head of member options at pension consultancy Hymans Robertson, said: "The Work & Pensions select committee’s decision to act on some of the worrying evidence of poor advice given to members of the British Steel pension scheme is much needed and welcome news for the industry.
"At a headline level, a ban on contingent charging would be powerful in improving confidence in the advice market and resulting member outcomes."
However, he warned any intervention should be considered "extremely carefully" to ensure it doesn’t cause unintended harm to the market.
He acknowledged banning contingent charging could be "highly disruptive" for advisers and was unlikely to be straightforward to implement.
"An outright ban on contingent charging may also lead to a reduced number of advisers operating in the defined benefit to defined contribution space and a reluctance for members to take advice if they have to meet upfront costs directly," he said.
"This issue therefore needs full debate with real focus on how the availability, costs and quality of advice will be impacted if contingent charging is banned."
National adviser LEBC on the other hand called for an outright ban.
LEBC's director of public policy, Kay Ingram said: "Contingent charging creates a doubt that the advice being given can be unbiased. It also perpetuates the cross subsidy between consumers and trivialises what is a key decision for the pension scheme member to make.
"The 'no transfer no fee' model should be consigned to history so that all consumers can be assured of impartial unbiased advice at a fair price. This would enable firms to cut the cost of advice for everyone and make advice more accessible."
The committee's inquiry is open until January 31. Its purpose is to provide the regulator with further evidence of consumer harm caused by contingent charging.
The regulator had decided against banning the practice in October despite finding widespread problems in the suitability of pension transfers.
It said its analysis had shown contingent charging was not the main driver of poor outcomes for customers but because of the significance of this issue to "all stakeholders" it confirmed it would carry out further analysis and consider action if appropriate.
carmen.reichman@ft.com
