The Work and Pension Select Committee is holding an inquiry into the way that pension transfer advice is charged for. This may seem an arcane subject but it’s not. As this blog has said many times, contingent charging was the lube that made the transfer market deposit up to £36.8bn into SIPPs and insured personal pensions in 2017 and over £10bn in the first quarter of 2018 alone.
The committee is calling for evidence of a link between contingent charging and the alleged mis- advice to over 50% of the estimated 200,000 people who transferred out over the past two years.
I know people who read this blog who took £1m + transfers from gold-plated de-risked DB schemes – some of which they de-risked themselves. They paid for that advice with their own money – and paid the VAT too – both of them. Why? Because they didn’t want to lock into some crappy advisory deal (one of them used that phrase), when they could manage their money better themselves.
That’s heroic stuff – those people make their money managing other people’s money, why shouldn’t they manage it themselves – one paid £10k + VAT and the other £8k +VAT – the VAT would not be recoverable.
Compare this pair with the people who transferred on average £400k from BSPS, they were not getting such good CETVs (typically 25 rather than 40 times the payment forsaken) but they paid nothing to get their money out – their fund paid it for them. They transferred out on a system called contingent charging which lubed the process and made it all “oh so easy”.
The W&P Select is calling for evidence. I can’t evidence myself. I refused to transfer my DB pension – I refused to take tax free cash – I am a Zurich Pensioner and I have no gilts!
My evidence is simple. If you can do better than a DB pension scheme, pay to have your head examined and pay the VAT – you may be right but the chances are you are deluded and a good adviser like Phil Billingham or Al Rush will tell you so.
If you have no cash but a big fat pension – like most of the people who were approached by Active Wealth, you should not be allowed to be seduced by a no win no fee transfer deal – promoted with a sausage and chips dinner. If you can’t pay the advisory charge (and the VAT) – you can’t have all your money in a CETV.
I know that Al Rush disagrees and points to special circumstances like single people with reduced life expectancy and a need for cash now. I have no doubt that there are people like this and no doubt that some have no money to pay for an upfront fee. But they are exceptional and I have no worry for exceptions to be dealt with via an exceptional process by exceptional advisers like Al.
There should be a process for quick release in dire circumstances and it’s the kind of process that could run through FOS, FSCS or even SFGB – a hardship committee could be set up.
But the exceptions cannot drive the process. Read my recent blog where I called on Government to take positive steps to reshape the transfer market.
Bring it on
I welcome this initiative by the Work and Pensions Select Committee who I know read what I write (from time to time!).
Here is their call for evidence – I will of course be sending this blog and those like it.
To help the FCA with its next steps, we want to hear from anyone who has been affected by this issue. Have you, or someone you know, received taken advice about a defined benefit pension transfer? Did you have a good or a bad experience? Do you think this was driven by the financial adviser’s charging structure? If so, please tell us your story by Thursday 31 January 2019.
If you do not have personal experience of this issue, but have views on banning contingent charging, the Committee still wants to hear from you. In particular, relating to the following questions:
- Does contingent charging increase the likelihood of unsuitable advice?
- What would be the impact of a ban on contingent charging on consumers and firms and how could any negative effects be minimised?
- Are there any alternative solutions that would remove conflicts of interest but avoid any possible negative impacts of an outright ban on contingent charging?
Is the non payment into the fund the same as taking substantial funds out. Surely the deal to limit contributions was the deal that needs to be scrutinised
The comments “If you have no cash but a big fat pension”, “You should not be allowed to be seduced by a no win no transfer deal”, I feel is patronising, implying that if a person does not have sufficient funds to pay upfront for the advice to transfer out then they should not be able to access their own CETV. The CETV could be lifechanging for them and their families, everyone is an individual. Weare individuals and should be treated as such. You should not force your pension decision on others, which I feel in many ways is perhaps done to reassure yourself that you have made the right decision. (I am a regular reader of your blogs).
In terms of managing money and the comment “crappy advisory deal”, the people you mention who paid for transfers plus VAT,are you say experienced money managers, good for them, they can do it for themselves. Obviously, the majority of DB pension holders are not, so they need to be advised by good IFA’s, who care about their clients, who will invest their money in good solid cost competitive funds, with no expensive upfront charges. Most then need ongoing advice on how to take this money and make it last throughout their lifetime.
Please do not tar all IFA’s with the same brush, we are not all like Active Wealth who placed clients in expensive DFM’s with stupid initial fees, as well as charging stupid initial fees via contingent charging to transfer them out. The FCA should launch an inquiry into why any Financial Advisers feel the need to charge extortionate fees for a DFM that performs no better than a Vanguard Passive fund. The FCA should also launch an inquiry into SJP, to ascertain why they can charge enormous initial and exit fees. I find it frightening that many SJP Advisers drive around in very expensive cars that are unaffordable to most of us, I wonder why that is?
I am an IFA who only does the right thing, I love and care about my clients.
Thanks for your comments Lisa, I have this conversation with Al and – yes- I do feel patronising when he shows me specific examples of the good transfers do. I once did a transfer on which I was paid £1200 commission, the transfer stopped my client’s house being repossessed. I was very proud of this and remain friends with that client to this day. That’s why I’ve concluded that we need a place where IFAs can take special cases and get clearance for contingent charging. I should point out that many of the transfers I helped happen between 1988 and 1995 (when I was an IFA) should not have gone ahead and wouldn’t have gone ahead if I hadn’t been paid a lot of commission.