End of pensions mis-selling? Advisers to be banned from charging more for advice when transferring savings
ADVISORS are to be banned from charging more to transfer cash out of pensions in a bid to crack down on possible pension mis-selling.
There are concerns financial advisers could be dishing out unsuitable advice in an attempt to make more money from pension savers.
The city watchdog found that financial advice on pension transfers was only suitable in fewer than 50 per cent of cases.
But a ban on higher fees could soon apply unless savers have specific circumstances which means a transfer is likely to be in their best interests.
The Financial Conduct Authority (FCA) also wants to tackle conflicts of interest which arise where a financial adviser stands to receive ongoing fees - which in some cases can be for 20 to 30 years following the transfer.
In these scenarios, advisers will have to explain why any scheme they recommend is more suitable than the consumer's workplace pension scheme.
How to start saving for your pension
HERE are some top tips on how to start saving for retirement:
- Start early: The earlier you start saving, the better. Analysts at wealth manager AJ Bell say that someone aged 65 wanting to retire today with an income close to the average £29,000 salary until 100 would need a pension pot of £447,000. But if you start at 25, you’d get there by contributing £235 a month. If you start at 35, the contribution necessary rises to £428. Leave things for another decade and it’s £859 a month.
- Increase contributions: Put in as much as you can — the savings will compound over the years and you’ll also get more tax relief from the government
- Check investments: Millions of people in workplace pension schemes have their savings invested in a “default fund” which may not be giving them the best returns. If you are confident enough, switching to a riskier fund could adds tens of thousands to your pot.
- Keep watch: Do not forget to check your pension statements at least once a year — plus your state pension. You’ll need 35 qualifying years of national insurance contributions to get the full pension, which is currently £168.60 a week.
The FCA is also looking at how firms can deliver low-cost advice to people who should not transfer.
It's hoped this will give better protection to workers with "gold-plated" defined benefit (DB) pensions, which offer savers a guaranteed level of income in retirement.
Christopher Woolard, executive director of strategy and competition at the FCA, said: "The FCA's supervisory work has revealed continued problems in the pensions transfer advice market.
"By making changes to the way advisers are paid for transfer advice and the other changes to transfer advice we are proposing today, we want to ensure people receive suitable advice and drive down the number giving up valuable defined benefit pensions when it is not in their interests to do so."
Tom Selby, a senior analyst at investment firm AJ Bell, says it's about time the regulator stepped in.
He said: "More than four years after the pension freedoms were introduced and under mounting political pressure, the FCA has finally decided 'enough is enough' on contingent charging for defined benefit pension transfers.
"It has been clear for some time that the regulator is uncomfortable with both the volume of transfer activity and the quality of the advice being given in certain circumstances."
Nathan Long, senior analyst at financial provider Hargreaves Lansdown added: "It’s rare that transferring a defined benefit pension is the best course of action, so banning contingent charging for this type of advice seems sensible.
"The challenge will be in making sure those for whom it could make sense have access to advice."
In addition, the FCA is looking at how advisers' charges are disclosed and how to make sure people understand the advice given.
The FCA found that many savers aren't engaged in pension decisions or aware of the charges they are paying, while products and charges are often too complicated to compare.
The consultation will run until October 30 2019 with the new rules expected to take force in early 2020.
Gareth Shaw, head of money at consumer group Which?, said: “Consumers need greater protection to ensure that they get the best advice for their pension, so the FCA's plans – including the proposed ban on contingent charges – are encouraging."
More on pensions
If you're worried you haven't saved enough for retirement, here's how to start saving for your pension now.
Plus, we round-up what help you may be entitled to under the state pension.
You should also watch out for scammers trying to steal your pension as Brits lose £4billion a year to these scams.
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