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There's been an outpouring of anger today from consumer campaigners over the FCA's delay in introducing a ban on contingent charging.
This controversial fee model used by advisors is believed to have fuelled a multi billion pound #pension transfer scandal.
Thread to follow:
This controversial fee model used by advisors is believed to have fuelled a multi billion pound #pension transfer scandal.
Thread to follow:
In October 2020, the FCA banned advisers from using the contingent charging (CC) fee model when providing DB transfer advice for clients.
Under contingent charging, the adviser only gets paid for their advice if the client acts on their recommendation to transfer their pension.
Under contingent charging, the adviser only gets paid for their advice if the client acts on their recommendation to transfer their pension.
Contingent charging was controverisal because it incentivised advisers to recommend transfers.
The FCA believes most people should not transfer their DB pensions, which offer a secure retirement income for life.
The FCA believes most people should not transfer their DB pensions, which offer a secure retirement income for life.
Evidence to MPs from 2018 pointed to contingent charging fuelling a vast increse in DB transfers, which worried the regulator.
In 2018 and 2019 the Work and Pensions Commitee called for contingent charging to be banned, and replaced with an upfront fee model.
In 2018 and 2019 the Work and Pensions Commitee called for contingent charging to be banned, and replaced with an upfront fee model.
But the FCA initally baulked at banning contingent charging, saying there was not enough evidence to link contingent charging and bad transfer advice.
It finally decided to ban CC in October 2020.
It finally decided to ban CC in October 2020.
Data released by the FCA today showed that in an 18 month period - before the ban come into force ( Oct 2020) - around 40,000 transfers were recommended on contingent charging basis, with an estimated transfer value of £20bn.
This is the first time the FCA has released data on the actual volume of transfers that were advised on a contingent charging basis, which it banned due to mis-selling risks.
From October 2018-March 2019, three quarters of transfer advice was done on a contingent basis.
From October 2018-March 2019, three quarters of transfer advice was done on a contingent basis.
A cloud now hangs over the suitability of those 40,000 transfers which recommended by advisers using now the banned contingent fee model.
The FCA has not disclosed how many of those 40,000 went on to transfer their pensions, thereby losing their secure income for life.
The FCA has not disclosed how many of those 40,000 went on to transfer their pensions, thereby losing their secure income for life.
Consumer campaigners said the FCA should have acted to ban Contingent Charging when MPs urged them to do so as far back as 2018.
Reaction from consumer campaigners to follow:
Reaction from consumer campaigners to follow:
"The FCA needs to be open and honest about how much its delay to introducing a ban on contingent charging has cost consumers making DB transfers," said Dominic Lindley, Director of Policy at New City Agenda.
Baroness Ros Altmann, a former pensions minister, described today's FCA data on contingent charging transfers as "shocking", adding waiting until October 2020 to ban Contingent Charging, "downplayed customer protection and put consumers at greater risk".
FCA analysis had found #pension transfer advice fees to be around £3500, when consumers paid upfront.
However, these charges could be double if the adviser was using contingent charging. Under CC, the advice fee is deducted from the pension pot when it is transferred.
However, these charges could be double if the adviser was using contingent charging. Under CC, the advice fee is deducted from the pension pot when it is transferred.
In an update today, the FCA said it was investigating 30 firms and individuals for #pension transfer mis-selling.
Pension transfers were uncommon until 2015 rule changes made it far more attractive to transfer a DB pension to riskier, but more flexible, DC pension arrangements.
Pension transfers were uncommon until 2015 rule changes made it far more attractive to transfer a DB pension to riskier, but more flexible, DC pension arrangements.
