CP19/25: Pension transfer advice: contingent charging and other proposed changes

Open consultation: CP19/25
30/07/2019
Consultation closes
30/10/2019
30/10/2019

This Consultation Paper sets out our proposed measures to change how advisers manage and deliver pension transfer advice, particularly for defined benefit (DB) to defined contribution (DC) transfers. We are consulting on banning contingent charging and making other changes to our rules and guidance.

Read CP19/25

Background

The government’s pension freedoms gave consumers with defined contribution (DC) pensions more flexibility in how and when they could access their pension savings. The government created a mandatory advice requirement to prevent members of defined benefit (DB) schemes transferring against their own best interests.

DB pensions are extremely valuable as they offer guaranteed, inflation-proofed lifetime income for them and their spouse, which most consumers want in retirement. However, significant numbers of DB scheme members have transferred to DC schemes.

In our view, given the advantages of DB pensions, the proportion of consumers advised to transfer is too high. We believe that many of these transfers will not have been in consumers’ best interests.

Initial conflicts of interest - contingent charging

We are concerned that too many advisers are delivering poor advice, much of it driven by conflicts of interest in the way they are remunerated. In particular, the practice of contingent charging creates an obvious conflict. This is where advisers only get paid if a transfer proceeds.

We are consulting on the following proposals:

  • To ban contingent charging, except for groups of consumers with certain identifiable circumstances that mean a transfer is likely to be in their best interests.
  • Where contingent charging is permitted, advisers will have to charge the same amount, in monetary terms, for advice to transfer as they charge when the advice is non-contingent.
  • To introduce a short form of ’abridged’ advice that can result in a recommendation not to transfer based on a high-level assessment of a client’s circumstances. This will fall outside the proposed ban on contingent charging and should help maintain initial access to advice.

Ongoing conflicts of interest

We are proposing strengthening our existing requirements that advisers giving pension transfer advice should consider an available workplace pension as a receiving scheme for a transfer where one is available.

This is intended to address the conflicts of interest created by ongoing advice charges. It will also reduce the level of transfers involving unnecessarily complex and expensive solutions.

Other proposed remedies

We have concerns about advisers’ overall competence and their ability or willingness to give consumers information to understand the implications of a transfer. So we are consulting on a package of proposals including: 

  • remedies intended to improve consumer engagement with the advice process (for example, improving charges disclosure)
  • a requirement that pension transfer specialists complete 15 hours of continuing professional development (CPD) each year, on top of any other CPD they undertake 
  • extending the range of data that we currently collect from financial advisers to improve our ability to regulate the sector
  • technical amendments to our rules, which include changes to the definition of a pension transfer

Who this applies to

This consultation will be of interest to firms providing advice on pension transfers from DB to DC schemes.

This consultation will also be relevant to stakeholders with an interest in pensions and retirement income, including:

  • individuals and firms providing advice and information on safeguarded benefits
  • managers and operators of contract-based pension schemes and trust-based occupational schemes
  • trade bodies representing financial services firms
  • professional indemnity insurers
  • administrators of pension schemes
  • members of pension schemes
  • consumer representative groups
  • all firms that are required to complete Form E (PII self-certification) in the Retail Mediation Activities Return, or forms FSA031, FSA032 or FIN-APF, should read Chapter 7.

Consumers will also be affected by this consultation.

What you need to do

Please send us your comments by Wednesday 30 October 2019.

Online response form

You can also:

  • email your responses to [email protected] or
  • write to: Sandra Graham and David Berenbaum, Financial Conduct Authority, 12 Endeavour Square, London, E20 1JN

Next steps

We will consider the feedback we receive on this Consultation Paper and publish our finalised Handbook text in a Policy Statement in the first quarter of 2020.