MPs reiterate calls for a ban on contingent charging

The Work and Pensions Committee has repeated its calls for a ban on contingent charging, following an inquiry launched to aid the Financial Conduct Authority’s (FCA) decision on the practice.

In a letter to the FCA chief executive, Andrew Bailey, from 5 April, committee chair Frank Field said that it has received no “compelling empirical evidence” that contingent charging “does not results in some independent financial advisers being incentivised to give bad advice”.

The practice of 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.

In October 2018, the FCA said that contingent charging is not the main driver of poor outcomes for customers, despite outlining pros and cons of the charge, adding that it “needs to carry out further analysis of the issues”.

In his latest letter, Field wrote: “Much of the evidence linked contingent charging to unsuitable advice and bad outcomes, but does not fully tackle the complexities of contingent charging or how to avoid unintended harm, particularly to vulnerable customers.

“A number of submissions also highlighted the fact that that contingent charging is not the only financial incentive which may lead independent financial advisers to give bad advice – an obvious example of this is ongoing fees following a pension transfer.”

Despite calling for a ban, the committee suggested a number of other areas for the FCA to explore, including the supporting roles played by The Pensions Regulator and the Money and Pensions Service in relation to trustees and guidance, as well as setting an “upper limit” for the amount that can be received via contingent charging.

It also recommended the possibility of a standardised approach to triage and whether or not members should be allowed to access part of their pension pot to pay for advice.

Responding to Field, Bailey thank the committee for its evidence and reiterated the regulator’s stance that further work was needed before intervening in the market, adding that “our work is progressing well and we intend to publish something further in the summer”.

During the inquiry, many respondents to the committee’s original inquiry highlighted the “unintended consequences” of an outright ban.

Aegon pensions director, Steve Cameron, said that a ban would only work to worsen the ‘advice gap’ and urged the FCA to use the Personal Finance Society’s gold standard on pension transfers, among other suggestions.

“We would welcome further investigation into what more can be offered under guidance including if this can be standardised. We would also welcome increased efforts to allow individuals to pay for advice from their DB scheme in return for reduced benefits. A cap on the level of contingent charging is also worth considering,” Cameron said.

However, LEBC, who also handed evidence to the regulator, rejects the idea that an outright ban would put advice beyond the reach of consumers.

LEBC director of public policy, Kay Ingram, said: “Only charging those whose circumstances mean that a transfer is a viable option is not a sustainable business model nor a fair pricing practice.

“We believe that advice to retain defined benefit pensions and the reasons for that advice should always be given in writing and that advice has value which needs to be paid for, only charging those who transfer leads to doubts about the integrity of the advice and encourages poor practice.”

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