Defined Benefit  

Steelworkers explain why they back contingent charging

Steelworkers explain why they back contingent charging

Banning contingent charging won’t solve the issue of poor advice, according to two steelworkers who were involved in helping their colleagues during the pension transfer debacle.

Rich Caddy, shift operations manager at British Steel in Teesside, and one of the former members of the British Steel Pension Scheme (BSPS), said a ban on contingent charging "would disadvantage the less wealthy consumers who are faced with a life changing decision", as was the case with members of the BSPS.

Mr Caddy made this argument in his submission to the Work and Pensions select committee inquiry into contingent charging on defined benefit (DB) transfers, launched earlier this month.

Under contingent charging a client only pays for the advice if they go ahead with the transfer.

Mr Caddy said: "Regardless of the transfer fee and how it is remunerated, an adviser is always on a win situation by recommending a transfer due to the ongoing annual fees."

Mr Caddy stressed to improve the integrity of the sector tighter regulation was needed, alongside "tougher penalties towards companies giving poor advice.

"This would also be beneficial towards the good advisers who instead see an occupation become tarnished from both poor advice and greed," he added.

David Neilly, a plant process operator in Port Talbot, said contingent charging gave laypeople the opportunity to exercise their pension freedoms.

He said: "It is the governance and transparency of the transfer transaction that needs clarification. 

"As a result of the BSPS transferees' experience, numerous amendments have been made to financial services documents effectively changing the landscape of the pension industry.

"The new safeguards that have been developed and are now being implemented and do give future financial pension transactions a greater level of protection and a securer platform to work from."

Following a consultation last year, the FCA decided in March to implement new rules for pension transfers, introducing an "appropriate pension transfer analysis" among other things.

This should demonstrate the suitability of the personal recommendation, as well as both behavioural and non-financial analysis, and consider alternative ways of achieving client objectives.

The Work and Pensions 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".

The committee stated it had received "worrying evidence" about the financial advice given to members of the British Steel Pension Scheme after they were given the option to transfer their pensions into defined contribution schemes.

But the regulator decided against it in October despite finding widespread problems in the suitability of pension transfers.

The regulator stated contingent charging was a "complex area" and poor advice on DB transfers had a number of causes.