FOI request highlights impact of contingent charging on DB pension transfers

Data from the Financial Conduct Authority (FCA) has shown that defined benefit (DB) pension members using advice firms that used a contingent charging structure were more likely to transfer than those using firms not using contingent charging.

A freedom of information request from LCP showed that more than two-thirds (68.25 per cent) of DB scheme pension members using adviser firms that applied contingent charging transferred out of their schemes, compared with just 27.97 per cent of members using firms with non-contingent charging structures.

LCP said this showed the correlation between charging structure and the extent to which those who seek DB transfer advice end up transferring, with the firm stating that, while there may be other factors at work, it seemed hard to believe that charging structure was not having a big impact.

Contingent charging was banned in October 2020, but LCP said the FCA “held off for years taking action on contingent charging”, noting that the watchdog had not acted immediately when the Work and Pensions Committee had called for the charging method to be scrapped in a report published in February 2018.

The report stated its concern that “genuine independence is not compatible with a charging model that only rewards advisers for recommending a particular course of action”.

LCP partner, Jonathan Camfield, said: “For the first time, we can see the dramatic difference between advisers who charged on a contingent basis and those who did not. More than two in three members who were being charged on a contingent basis ended up transferring compared with less than one in three where the adviser was charging on a non-contingent basis.

“This is the strongest evidence to date of the potential for bias when an adviser gets paid more if a transfer goes ahead. Yet the FCA allowed contingent charging to continue long after concerns were raised by the select committee and others.

“It is vitally important that the interests of the member and the adviser are in alignment and it would appear that on too many occasions in the past this was not the case.”

Pensions Age has contacted the FCA for comment.

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