Thousands of savers who gave up valuable final-salary pension benefits did so after consulting financial advisers who knew they would only get paid if they recommended a pension transfer, new data from the Financial Conduct Authority (FCA), the City regulator, reveals. The figures will increase the pressure on the FCA to explain why it took so long to outlaw a controversial charging model despite warnings it was fuelling the mis-selling of pension transfers.
In October, the FCA announced advisers would no longer be allowed to charge contingent fees when giving advice on transfers. Such fees are only payable if the saver ultimately decides to transfer their pension savings, prompting concerns that many advisers were recommending such transfers simply to get paid – despite a widespread consensus that giving up final-salary occupational pensions scheme benefits, which are guaranteed, does not make sense for the vast majority of people.
Over the 18 months to March 2020, around 39,400 savers were advised to leave a final-salary pension by an adviser working on a contingent fee basis. The regulator has not said how many of them followed their advisers’ recommendations, though around 100,000 savers transferred out of a final-salary scheme over the two years to March 2020.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Nowhere to turn
Those caught out by the scandal have limited recourse to redress. Reversing the transfer is unlikely to be possible, leaving savers with no alternative but to pursue their advisers for compensation, either directly or through the Financial Ombudsman Service. However, there is some concern about advisers who have since gone out of business, especially since the regulator’s data shows some were not properly insured. That would leave savers with nowhere to turn.
For its part, the FCA consistently refused to ban contingent fees in 2018 and 2019 because it said there was insufficient evidence that the practice was leading to poor advice. The regulator has always been concerned that many savers are uncomfortable with the idea of paying for advice upfront, particularly if that advice turns out to be that they are better off doing nothing.
In the end, however, the FCA felt compelled to act against contingent charging, given its prevalence and the large numbers of people giving up final-salary pension benefits despite repeated warnings they were likely to be worse off as a result. The regulator conceded the practice meant advisers had a clear conflict of interest.
-
What will the unravelling of US-China trade mean for the economy?What will a US-China decoupling mean for the global economy?
-
Scottish Mortgage: why we’re turning to private companies and China for exceptional returnsWhen it comes to delivering growth, Scottish Mortgage will stop at no end in its hunt for exceptional long-term returns - this includes China, unicorn companies and sectors such as space exploration
-
Flex first, fix later: a hybrid retirement strategy to considerYou needn’t choose between income drawdown and an annuity in retirement. What is a “flex first, fix later” approach?
-
A new wealth tax is a terrible idea. The rich are already being hit by sneaky taxes – Merryn Somerset WebbOpinion Ideologues want to squeeze more tax out of the rich with a wealth tax. They’re already wrung dry, says Merryn Somerset Webb
-
Has your pension plunged in stock market turmoil? How to avoid creating real shortfallsSliding stock markets are no reason to sell out of your pension in a panic, says David Prosser
-
Pensions revolution: how to profit from the trends shaping the UK pension systemThe UK pension system is one of the biggest in the world. Big changes are under way, says Rupert Hargreaves
-
What MoneyWeek writers read and watched in 2024Here's a roundup of MoneyWeek's favourite books, films and TV shows in 2024
-
Parents face £1,000 'nanny tax' – how to afford itHiring a nanny is about to become even more of an expensive hassle for families, especially those in London. Here's how to cut costs
-
Is it cheaper to be a sole trader?It might be cheaper to be a sole trader due to changes to the tax system
-
Should you switch your pension fund?Many pension fund options are poor performers, thanks partly to high charges. Is it worth switching?
