The Work and Pensions Select Committee (WPC) has called on the FCA to explore the case for setting an upper limit for the amount of a DB transfer fee that can be received via contingent charging.
In a letter to Financial Conduct Authority (FCA) chief executive Andrew Bailey, published today, WPC chair Frank Field suggested the regulator should explore alternative means for addressing “the problem of contingent charging”.
Field said an upper limit – which could be addressed in either cash or ad valorem terms – for the amount of a defined benefit (DB) transfer fee that could be received via contingent charging, should be considered.
Additionally, he said the regulator should look at whether to allow individuals in DB schemes to access part of their pension pot in order to pay for advice in a similar manner to DC schemes.
The WPC launched an inquiry into contingent charging on DB transfer advice in January, having already suggested the practice should be banned following the outcome of a previous inquiry into pension freedom and choice.
In the letter, Field made it clear the government had not changed its view, and that it still believed the practice should be banned.
“The committee has received no submissions [to the inquiry] which provide compelling empirical evidence that contingent charging… does not result in some independent financial advisers being incentivised to give bad advice, nor that there were suitable checks and balances in place to prevent this,” he said.
In response, Bailey said the evidence gathered by the WPC had been passed onto the team “working on this”. He said the FCA had taken into account the view of the committee, and that “we intend to publish something further in the summer”.
FCA holds off on ban
The committee has persistently found advisers could be incentivised to give bad advice – for example, recommending a DB transfer where inappropriate to do so when using a contingent charging fee structure because they are only paid if the client goes ahead with the transfer.
Following the committee’s freedom and choice inquiry, however, the FCA decided to hold off on making any changes to its rules on contingent charging for DB transfers, arguing the evidence did not show “contingent charging is the main driver of poor outcomes for customers”.
Field, however, said: “We remain firmly of the view that urgent action is needed to protect pension scheme members from the scourge of contingent charging.
“If [the FCA’s] evidence base suggests that an outright ban on contingent charging carries with it a credible and significant risk of consumer detriment elsewhere in the system, then we would be very open to looking at any proposals you might have for achieving the same outcome.”