personal finance

MPs to investigate ‘contingent charging’


MPs are to investigate the use of a controversial charging structure for pension transfers that may be fuelling a fresh mis-selling scandal.

The work and pensions select committee said on Monday that it was seeking evidence on the use of “contingent charging” by financial advisers operating in the booming market for “defined benefit” pension transfers.

Under contingent charging, clients only pay for complex financial advice when they’ve accepted the recommendation of an adviser to give up their “defined benefit” pension, with the fee deducted from the client’s fund.

While this allows clients to avoid dipping into their own pockets to pay upfront for advice, which can amount to thousands of pounds, the committee has previously called for a ban on the pricing model because it was incentivising bad advice.

“The Financial Conduct Authority has confirmed to me that it shares many of the committee’s concerns about the scourge of contingent charging,” said Frank Field, chair of the committee.

“But to tackle this, and to protect consumers from the vultures circling around their pension pots, it needs more proof of what is really happening to people.”

In 2018, the committee heard evidence that contingent charging had been used by unscrupulous advisers to lure Welsh steelworkers to give up their secure DB pensions and transfer them into high-charging, unsuitable funds.

The committee’s inquiry into the British Steel Pension Scheme heard that one adviser — who had transferred dozens of steelworkers into unsuitable funds — had used contingent charging.

The regulator’s current position is that most savers are better off retaining their DB pension rather than giving up a secure income for a lump sum and transferring it to a riskier pension arrangement.

But since 2015, an estimated 100,000 transfers have been arranged by advisers, with contingent charging in widespread use.

Last month the regulator said less than half the transfer recommendations it had reviewed from a sample of 18 firms were suitable, or were right for the customer.

In October, the FCA said contingent charging was a “complex area” and that the evidence did not show that contingent charging was the “main driver of poor outcomes for customers”.

The regulator is carrying out further analysis and said it would consult on any new interventions, which may include a ban on contingent charging. Currently, individuals are required to obtain independent advice if the DB pot they wish to transfer is worth more than £30,000.

“The FCA has said it would welcome the committee’s help to find out more, and we’ll be happy to do everything we can to make sure we get the right safeguards in place,” said Mr Field.

Respondents to an FCA consultation last year argued a ban on contingent charging could limit access to financial advice, if it meant that clients had to pay fees upfront.



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