From October 1 2020 The Financial Conduct Authority (FCA) is banning the use of ‘no transfer, no fee’ charging models for pension transfer advice.
It is rarely in anyone’s best interest to transfer out of a DB scheme into a DC scheme yet the FCA’s own data suggests 69% of consumers have been advised to transfer their DB pension. It’s a lucrative business for advisors who, if charging 4 to 5% of the transfer value, will receive a fee of £17,615 based on the average transfer of £352,303.
This decision, therefore, comes as a result of current guidance that appears to be in the best interests of the advisors who are keen to get a fee – rather than consumers. Advisers only get paid if a transfer happens and so there is an obvious conflict of interest and this change is part of a general movement that focuses on increased regulatory focus in the pension industry.
However, while the majority of transfers are not advisable, as trustees we should take into account that this new ruling may not be beneficial for some members, and as always, we should ensure that they are able to make the best decisions about their retirement options. Scenario planning on the pros and cons of transfer could be one of the communication options we choose, and, trustees could work closely with Appropriate Pension Transfer Analysis (APTA) providers to ensure analysis is correct and easily understandable.
We should point out that there are many good quality advisers providing relevant and useful advice and unfortunately all advisers are being negatively tarnished because of the more unscrupulous operators.
The economic conditions created by the coronavirus has seen some people make hasty decisions they may regret over the longer term and although the changes are to be welcomed, why wait until October? This is the ideal climate for scammers to operate and its important trustees and consumers are vigilant.