Defined benefit (DB) schemes should be encouraged by regulators to appoint financial advisers for their members who are considering cashing out their pension, according to Just Group.
In its submission to the Work and Pensions select committee inquiry into charging structures for financial advice on DB transfers, launched in January, the provider offered this idea as an alternative to contingent charging.
Stephen Lowe, group communications director at Just Group, told FTAdviser the Financial Conduct Authority (FCA) together with The Pension Regulator (TPR) "should encourage pension schemes to put services in place using specialist advisers who operate at scale".
He said: "This could be preceded by education at the scheme end. Many schemes are already adopting this approach. This is a proven model delivering good customer outcomes."
This was akin to the recommendation made by Caroline Rookes, ex-Money Advice Service chief, who conducted an independent review of the British Steel Pension Scheme (BSPS) scandal.
She said TPR should explore the idea of trustees or trade unions having a panel of financial advice firms that members can choose from for their transfers.
In its submission, Just also explained this initiative would make the advice more affordable to the member.
It stated: "Where a pension scheme runs exercises for pension scheme members (e.g. bulk or at-retirement flexible retirement options), financial intermediaries operate successfully on a flat fixed fee model to provide advice."
FTAdviser reported last year that when a pension scheme appoints a financial adviser to assist their members with a pension transfer, the cost of advice can be slashed by up to 75 per cent.
The provider told the committee contingent charging was "inherently biased" as it questioned how a firm could operate in this market if the true cost of their advice was being waived.
"In our experience many firms charge up to 3 per cent of the cash equivalent transfer value (CETV), often uncapped. If the true cost of advice on a £300,000 CETV is £9,000 how could a firm bear the financial strain of writing that amount off?" it asked.
The provider said: "This either results in a cross subsidy in the style of commission, or a risk of bias towards a transfer being recommended. If not the firm in question would quickly become insolvent."
FTAdviser reported this week that several alternatives to contingent charging have been suggested to the committee, such as to fund transfer advice with a debit from the member’s rights under the DB scheme.