LONDON (Reuters) - Britain’s markets watchdog has banned contingent charging from October after lawmakers criticised financial advisers for ripping off steelworkers facing critical decisions about their pensions
Contingent charging refers to financial advisers not earning their fee for pensions advice unless it results in a transfer, creating an incentive to push clients to move from one scheme to another even though it may not be in their best interests.
The Financial Conduct Authority said its ban means that advisers must charge the same amount for advice to transfer a pension pot as for advice not to transfer.
“The proportion of customers who have been advised to transfer out of their defined benefit pension is unacceptably high,” FCA interim Chief Executive Christopher Woolard said.
In a 2018 parliamentary report, lawmakers criticised the FCA for being too slow to prevent “vulture” advisers ripping off steelworkers in Port Talbot, Wales, by forcing them to choose between moving their British Steel pension to a new company scheme or joining a lifeboat scheme.
A lifeboat is a scheme set up by the government to protect pension benefits when their employer becomes insolvent.
The Association of British Insurers said the ban was “the right thing to do”. Pensions company Aegon however said accessing advice will be even harder, while Canada Life pensions firm cautioned against “demonising” all transfers.
The FCA said on Friday that in reviewing pensions advice given in defined benefit cases across the market, it found that the percentage of clients given unsuitable advice in the British Steel scheme was higher than those in the rest of the sample.
The watchdog will write to 7,700 former members of the British Steel scheme to help them to revisit the advice they received, and to complain if they have concerns.
The FCA is undertaking 30 enforcement investigations arising from its scrutiny of the defined pensions advice market.
Wealth manager Quilter said its subsidiary Lighthouse Advisory Services was being investigated in relation to advice on transfers out of the British Steel pension scheme.
Reporting by Huw Jones; Editing by John Stonestreet and Jan Harvey and Kirsten Donovan