30th September 2020
TLT: Ban on contingent charging in DB pensions transfer advice to ‘end pension freedom in all but name’
30 September 2020
The FCA’s ban on the use of contingent charging in defined benefit (DB) pensions transfer advice comes into force tomorrow (1 October 2020). The ban, initially announced by the regulator on 5 June, comes as part of an effort to remove conflicts of interest in transfer advice and the practice that sees financial advisers secure payment only once a transfer has occurred. The FCA has stated this rule change could reduce both the need for advice and associated costs for consumers.
Noline Matemera, partner in the financial services regulatory team at UK law firm TLT, reacts to the implementation of the FCA’s ban and argues that regulatory tightening could see the end of genuine pension freedom and point to a troubling evolution in how firms are regulated.
Noline Matemera, partner at UK law firm TLT, comments:
“Since its introduction in 2015, pension freedom has made freedom and choice in pensions a cornerstone of how the retirement market operates – opening up a host of new options for consumers allowing them to fully assess all retirement options available. The FCA’s decision to ban contingent charging in DB pensions transfer advice will see the DB advice market contract and possibly grind to a halt, making it difficult for consumers to truly access the same wide range of options.
“The fact that the regulatory goalposts have shifted so rapidly on DB pensions transfer advice is part of the problem. This has also occurred against a backdrop of intense regulatory engagement and focus on this sector. The FCA adopted a more collaborative and cooperative approach with the industry in the past, which provided a clear pathway to compliance and ensured firms were able to marshal the resources necessary to adapt to new regulatory demands. While this approach may take a bit more time, it allows firms to understand the regulator’s objectives and secure buy-in. The increasingly systematic use of ‘Dear CEO’ letters or more interventionist supervision however points to a worrying future of rule by regulatory fiat.
“With the ban taking effect tomorrow, the DB advice market is very likely to further consolidate, and we could be left with a small selection of adviser firms providing largely the same advice to consumers. Where would this leave pension freedom, the new options it offers and competition in this sector? It would mean the end of pension freedom in all but name.”
ENDS