A proposed ban on contingent charging for pension transfer advice has today been set out by the FCA.

The regulator’s consultation paper (CP) details measures to change how advisers manage and deliver pension transfer advice, particularly for DB to DC transfers. Concerns have been raised that too many advisers are delivering poor advice, much of it driven by conflicts of interest in the way they are remunerated.

Groups of consumers with certain identifiable circumstances that mean a transfer is likely to be in their best interests will be exempt from the ban on contingent charging. Furthermore, the FCA said it is proposing that 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 contingent.

The introduction of 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 has also been proposed. “This will fall outside the proposed ban on contingent charging and should help maintain initial access to advice,” the FCA said.

“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,” it added.

“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.”

Responding to the CP, Royal London director of policy Steve Webb said: “It is vital that the consumer comes first when it comes to the rules around DB transfers. Some of the FCA’s proposed changes will help to reduce the risk of consumers transferring into poor value destinations for decades after a transfer and are to be welcomed. Benchmarking against transferring into a workplace pension scheme will provide a useful safeguard. The ability of advisers to offer simpler ‘abridged’ advice will also help to reduce costs to consumers.

“But if contingent charging is to be banned, the FCA and the government need to find new ways of making transfer advice affordable and available. If the FCA does not have the power to enable people to claim advice costs out of their DB pension rights then the government needs to legislate to make this a tight. Consumers should also have a right to a partial DB transfer to reduce the all-or-nothing nature of too many transfers. Until now, FCA actions have reduced the supply of DB transfer advice and raised the cost, driving some high quality advisers with unblemished records out of the market altogether. This has to change.”

The FCA declared its concerns about advisers’ overall competence and their ability or willingness to give consumers information to understand the implications of a transfer. Therefore, it wishes to consult on remedies intended to improve consumer engagement with the advice process; a requirement that pension transfer specialists complete 15 hours of continuing professional development each year, on top of any other CPD they undertake; extending the range of data that it currently collects from financial advisers to improve its ability to regulate the sector, and technical amendments to rules, which include changes to the definition of a pension transfer.

Comments linked to the CP can be submitted to the FCA by 30 October using the online response form.

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