MPs warned of ‘unintended consequences’ over contingent charging ban

The pensions industry has warned of the “unintended consequences” a ban on contingent charging could cause, urging the Work and Pensions Committee to keep an open mind on the issue, after the government body launched an inquiry into the controversial practice.

Commenting on the inquiry, Aegon pensions director, Steve Cameron, argued that a complete ban should be a last resort as it will only “exacerbate the advice gap”, and that the focus should be on managing “specific conflicts” in the first instance.

Launched yesterday, 7 January, the Committee is looking to gather evidence around the likelihood the charge increases bad advice, as well as assessing the impact a ban would have on consumers. It will also explore alternative solutions to a ban, with the aim of removing conflicts of interest.

It follows the Financial Conduct Authority’s (FCA) decision in October, 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”.

Hymans Roberston head of member option, Ryan Markham, added that any proposed change should be considered carefully in order to avoid “unintended harm”.

“Banning contingent charging could be highly disruptive for advisers and is unlikely to be straightforward to implement given the broader link to charging structures for managing investments and providing ongoing financial advice,” he said.

Personal Investment Management and Financial Advice Association (PIMFA) senior policy adviser, Simon Harrington, believes that the removal of the charge will not necessarily improve the quality of advice for consumers.

He said: “Removing contingent charging without a viable way for individuals to access advice will ultimately turn people away from an absolutely indispensable part of the retirement planning process.”

Despite this, LEBC director of public policy, Kay Ingram, argues that the “no transfer no fee” model should be “consigned to history”, but that advice to retain occupational pension benefits “is valuable and should be paid for.

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.

The Committee is looking for evidence to be submitted by 31 January.

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