The City watchdog has announced measures to deal with an “erupting pensions mis-selling scandal”, but MPs say the plans do not go far enough to protect people’s savings.
The Financial Conduct Authority (FCA) has proposed tightening up rules around transfers out of defined benefit schemes. It comes after MPs found last month that “dubious” advisers and “parasitical” introducers had “shamelessly bamboozled” 2,600 British Steel workers into switching their funds in order to secure lucrative fees.
The Commons Work and Pensions Committee called for urgent action after finding that tens of thousands of people in company pension schemes up and down the UK could be affected by similar bad advice.
Under the FCA’s proposals, advisers undertaking pension transfer advice will be required to have the same qualifications as investment advisors.
The regulator will also require advisers to start from a presumption that a transfer out of a defined-benefit scheme is not in a client’s interests. The move represents the second time the FCA has performed a U-turn on the issue after it proposed to drop the presumption last year.
The FCA said it would consult on whether to ban contingent fees that mean the adviser takes most or all of their fee only if the person switches out of the scheme.
But the watchdog stopped short of implementing rules to restrict the controversial practice. Critics have said contingent fees raise a clear conflict of interest between giving impartial advice to a client and looking to secure commission.
More than 100,000 people a year are opting to transfer their money from defined-benefit schemes, the pensions committee’s report said last month.
Another estimate from pensions consultancy firm Origo puts the figure at 250,000 transfers in 2017, worth about £15bn. The FCA’s own research found that advice was substandard in half of all transfers.
Labour MP Frank Field, chair of the pensions committee, welcomed Monday’s announcement but said more action was needed.
“Purging the inherent conflict of interest posed by contingent fees is a necessary, although not sufficient, step, towards giving the public the assurance of an unbiased and professional service from the financial advice industry,” Mr Field said.
“Dropping the starting presumption that a defined benefit transfer is a bad idea that would have sent entirely the wrong signal.
“The FCA should now take the battle against the pension-snatchers further by banning contingent charging on defined benefit transfer advice. As pension transfers surge to unprecedented volumes, the disturbing amount of unsuitable advice in this area poses a clear and present threat to the nation’s pension savings.”
Christopher Woolard, the FCA’s executive director, said defined benefit pensions are valuable so most people would be best advised to keep them.
“However, where people are considering a transfer, it is vital that they get good advice to enable them to make an informed decision,” he added.
“We are also looking at whether further changes are needed to improve the quality of advice in this area. In particular, we recognise that there is an inherent conflict of interest when advisers use a contingent charging model so we are asking for views on whether we should ban contingent fees for pension transfer advice.”
