Pensions as usual; day 2 without contingent charging – pensions as usual



Day one of life without contingent charging was marked with some pretty extraordinary articles, none more so than this nonsense.

Nonsense – contingent charging was an abuse of tax relief!

You don’t put an end to pension freedom by turning off a tax loophole that turned pensions into private wealth.

What you do is protect the tax-payer from a double whammy.

First from seeing a defined benefit pension designed to protect people against living too long, swapped for a capital reservoir with no limits on its drawdown. This is not what tax relief was designed for.

Secondly a legal loophole that allowed advisers to collect fees from a tax-exempt fund , effectively extending the tax-free cash element of the pension tax exemption. To boot, getting round the requirement to pay VAT on advisory fees.

The tax privileges accorded to pensions were sorely abused by contingent charging, that abuse will not be missed.

Nonsense – contingent charging had nothing to do with pension freedom!

Pension freedoms were brought in by a chancellor who did not want to see people required to purchase an annuity from part of their DC pension pot. It had nothing to do with defined benefit pensions – either deferred or in payment.

The conflation of the right to take a CETV (granted in 1988) and the right to draw down a pension pot as one likes (granted in 2015) is a historical nonsense. It is also extremely irresponsible. The worst cases of mis-selling of personal pensions as an alternative to defined benefit scheme pensions were based on the misapprehension of the client that their pension was being “liberated”. We hear that word again and again in the testimony of those directly scammed and those the victims of the fractional scamming that followed.

There is nothing liberating of being relieved of your pension.

Nonsense – contingent charging created a huge conflict of interest.

The use of contingent charging, first to generate transfer  advisory fees and secondly to create investment fees on the proceeds from that advice , created a conflict of interest which will haunt IFAs for some time to come.

Easy money seldom comes without a liability and the liability IFAs are now facing is increased Professional indemnity costs, increased levies and in some cases restrictions on trade from their regulator.

But the reputational damage while less easy to quantify, is no less significant. For all the special pleading by those whose financial planning practices were built around contingent charging, their business model has been found wanting, based on a value short-cut.

Conditional charging exposed many IFAs to charges of being opportunistic and ruthless in exploiting the poor understanding of their clients of what pensions are actually about. The abuse of trust that has led to many firms having permissions withdrawn or actually being closed down, mires the financial advisory profession. For those good advisors who were showing financial planning to be worthwhile and worthy of its fees, the behavior of those who processed pension transfers on an industrial scale, is a kick in the teeth.

Nonsense – the slowdown in DB transfers is not harming consumers!

The arguments in the article linked to at the top of this blog are so specious as to not deserve repetition. The FCA’s recent publication of retirement income data shows a clear trend

The number of defined DB to DC transfers received by pension providers covered by our data in 2019/20 were down by 28% to 40,600.

This at a time when transfer values have been at their highest and equity markets (till March 2020) in full speight.

The FCA has consistently marked at least half of transfers advised on as “questionable” and a significant number as poor advice. Many people are now left with money in expensive wealth management , dependent on their advisers for ongoing advice on how this money can deliver an income for life.

LCP’s has produced recent research, showing that even a 4% drawdown on funds is likely to deplete the pot so that it more than likely to run out before its owner. But the FCA retirement income data shows that drawdown is quite typically running at twice 4%

42% of regular withdrawals were withdrawn at an annual rate of 8% or more of the pot value (40% in 2018/19)

The slowdown in DB transfers occasioned by turning off the tap that was contingent charging is a good thing.

It means that money in pension schemes will stay in pension schemes. Pension scheme income is protected by the PPF and members interests are protected by the Pensions Regulator. For all the strain on sponsors, TPR’s funding rules are there for the security of members.

Members who transfer away from defined benefit schemes are giving up the protections not just of an income today, but an inflation protected income tomorrow and an income for their spouse (and usually partner) if they did first.

Contingent charging has channeled getting on for £100bn into retail financial products but the gravy train is over.


Day 1 of contingent charging was a bright day, offering hope that people will enjoy their future pensions without the distraction of the wealth management “industry”.

Day 2 and what follows can be called “pensions as usual”.

For a sensible account of how contingent charging came to be banned, read Jack Gilbert’s and James Fitzgerald’s simple account.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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