The Work and Pensions Committee has launched an inquiry into contingent charging in order to gather evidence around the likelihood it increases bad advice, it has been revealed.
The inquiry, launched today (7 January), will also assess the impact a ban will have on consumers and firms and how it can be minimised, as well as exploring alternative solutions to a ban with the aim of removing conflicts of interest.
In October, the Financial Conduct Authority (FCA) confirmed that contingent charging is not the main driver of poor outcomes for customers, despite outlining pros and cons of the charge, adding that said it “needs to carry out further analysis of the issues”, in particular the lack of evidence linking the charge to bad outcomes.
Work and Pension Committee chair, Frank Field, said: “The FCA has confirmed to me that it shares many of the Committee’s concerns about the scourge of contingent charging. 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.
“It has explained to me the complexities of contingent charging, and how it needs to carefully consider its possible interventions so as not to cause unintended harm, particularly to vulnerable customers.
“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.”
Responding to the FCA’s original decision, Field stated that the regulator buried its head in the long-grass over contingent charging, and called upon the FCA to take action.
Contingent charging, the fee an adviser takes if its customer decided to take a defined benefit transfer, has been blamed for incentivising advisers to tell their clients to transfer, despite not always being in their best interest.
Commenting on the inquiry launch, Aegon pensions director, Steven Cameron, has urged the Committee to keep an open mind on contingent charging, suggesting that it explore whether conflicts of interest can be effectively managed in the first instance.
"Contingent charging can create conflicts of interest, but an outright ban should be a last resort option as it will exacerbate the advice gap. Regulatory policy shouldn’t be based on stamping out isolated instances of bad practice, particularly if this could constrain how the vast majority of professional advisers serve their clients," he said.
The issue has risen to prominence following the Committee’s inquiry into pensions freedom and choice, and particularly around advice given to members of the British Steel Defined Benefit Scheme.
Though the issue is not specific to British Steel, earlier this week it a emerged that 5,000 pension transfers were completed by firms who were later told to exit the market, according to a Financial Times report.
Last year, pension transfer values increased to £8.6bn over Q3, data from the Office for National Statistics found.
The Committee is looking for evidence to be submitted by 31 January.