LONDON (Reuters) - Britain’s markets watchdog is considering banning certain types of charges for pension transfers and is proposing that advisers gain investment qualifications, it said on Monday, following concern that policyholders are being given bad advice.
Following a change in rules three years ago, British pension holders can give up their pension pots at age 55 or above for a lump sum or another investment.
However, the Financial Conduct Authority has come under fire for slowness in preventing “vulture” advisers from persuading steelworkers to give up their “gold-plated” defined benefit, or final salary pension schemes, which give a fixed income for life, for risky investments with high fees.
The FCA said it was seeking views on banning “contingent charging”, in which consumers only pay for the advice if they transfer their pensions.
For firms which only advise on pension transfers, this charging model “has the greatest potential to incentivise unsuitable advice, as such a firm would not be viable if it did not recommend a minimum number of transfers each year”, the FCA said in a consultation paper on improving the quality of pension transfer advice.
The FCA should ban the charges, said Frank Field, chair of the British parliament’s work and pensions committee.
“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,” he said.
Most consumers would be best advised to keep their defined benefit pension schemes, the FCA said, adding “there is potential for significant consumer harm if unsuitable advice is given to consumers who are considering giving up these benefits”.
The FCA also said it was proposing that pension transfer advisers obtain an investment advice qualification.
Reporting by Carolyn Cohn; Editing by Hugh Lawson