DB pension transfer advice consultation

20 December 2019



We responded to the latest FCA consultation paper CP19/25 on DB pension transfer advice which closed at the end of October 2019. Here we look at what we said in our response.

Banning contingent charging

The most contentious area of the paper is the proposed ban on contingent charging. 

We support measures to reduce the number of individuals receiving unsuitable advice, but we don’t support a ban on contingent charging for the following reasons:

  • There is no evidence (other than circumstantial) that contingent charging is a driver of poor advice outcomes.
  • The proposed ban focuses on initial advice charges, but ongoing advice charges present a greater bias towards a positive recommendation to transfer which a ban on contingent charging does not address.
  • A ban on contingent charging has the potential to significantly reduce access to advice.
  • A ban on contingent charging could result in a significant increase in insistent client transactions which will not be in the clients’ best interests.

We also believe the action the FCA is taking by writing to individual adviser firms to highlight specific concerns around their advice processes, the areas they need to change and monitoring if they do, will drive a substantial reduction in poor member outcomes - and remove the need for a ban on contingent charging.

Scheme pays and partial transfers

We strongly support the potential for ‘scheme pays’ to pay for advice and the greater availability of partial DB transfers.

‘Scheme pays’ would be one way to ensure that access to advice is not reduced by the abolition of contingent charging.  Those who could benefit from advice but don’t have (or are unwilling to spend) several thousand pounds of post-tax income, could instead opt to debit the cost of advice against their DB rights.  This would also be much more tax efficient for the member than paying for advice out of their disposable income.

Partial transfers would allow members the ‘best of both worlds’, especially for those with large DB rights in a single scheme.  It would allow the member to secure core income from the state pension and a partial DB pension, and then enjoy the freedom and flexibility of a transferred capital sum. 

Abridged advice

We agree something akin to abridged advice is needed to fill a gap between triage and full advice.  Our primary concern is whether it will be offered on a regular basis.  The adviser’s remuneration will likely be lower, they retain the liability and will have to charge up front for it.

There is also a concern that the abridged advice proposals still involve a significant amount of the work involved in full transfer advice.  These are often the most costly and time consuming elements, not least of which is knowing the member’s circumstances in sufficient detail to ascertain whether a transfer is likely to meet their needs.

Suitability against a workplace pension scheme

While we support encouraging advisers to keep a sharp focus on the value for money of the receiving scheme, we feel the focus on the workplace pension scheme may not be in some members’ best interests.

If the transferred money goes into a workplace pension, it could lead to fewer people taking ongoing advice.  Although they can still pay for advice out of their taxed income, this is much less cost-effective for the individual than if they could pay for advice through the ‘adviser charging’ mechanism on an individual pension.

A comparison with the workplace pension should not just be about cost.  A saver in a workplace pension is most likely to end up invested in the default fund.  Whilst the default fund may be right for the bulk of ordinary members, it is much less likely to be right for someone who has transferred in a large DB pot.

About the author

Robin Nimmo

Proposition Strategy & Insight Manager

Robin has worked for Royal London for over 30 years with experience in marketing, research, technical support and product development. He currently specialises in the savings and at retirement markets.

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The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.