A proposal by the Financial Conduct Authority (FCA) to improve pension transfer advice has been described as 'flawed' and 'misleading' by the Personal Finance Society (PFS).

The professional body has an issue with a cost template set out in Annex 1 of the FCA’s consultation paper 19/25. The template helps consumers compare the costs of advice from a pension transfer specialist with the cost of advice from a pension scheme or employer.

PFS chief executive Keith Richards said that while he supported the FCA’s aims for improving transparency and better managing of conflicts of interest, the proposal is flawed.

“For clients to enjoy the benefits of full transparency, they have to be able to compare different options on a like-for-like basis,” he said.

He cited the fundamental principle of the Retail Distribution Review as separating the purchase of advice as a service from the purchase of a product.

“We are concerned that the FCA’s template does not live up to these principles, and could be misleading.

“It implies that the cost for ongoing advice in a workplace pension is provided free of charge by the pension scheme or the employer, whereas in practice the scheme member is usually required to obtain ongoing advice separately”, he said.

“This is especially true for transfers from a defined benefit scheme to a workplace defined contribution scheme, since some level of ongoing advice will be essential for the vast majority of clients.”

The PFS has proposed an alternative approach where the costs of ongoing advice were to be disclosed clearly, in pounds and pence, with a note that the costs of ongoing advice for defined benefit schemes may be lower, due to the fact that the benefits have a higher level of guarantee.

Yesterday, 30 July, the FCA made a number of proposals to improve the advice that pension scheme members receive when looking to transfer from a defined benefit to a defined contribution scheme.

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