The Financial Conduct Authority (FCA) has said there is an “inherent conflict of interest” when firms use contingent charging structures for DB pension transfers, according to its business plan for 2019/2020, where it assessed its activity for the next financial year.
Alongside DB issues, the UK regulator also said it is continuing to consult the industry on further requirements for firms to provide a range of investment pathways to help consumers choose options that meet their needs when entering drawdown.
Defined benefit transfers
The FCA plans to start a “wide ranging programme of activity”, where it may take action against any firm that continues to harm consumers while involved in DB pension transfers.
It added: “There is an inherent conflict of interest when firms use contingent charging structures. We asked for views on how these structures for pension transfer advice may cause consumer harm.
“To help with our policy development, the Work and Pensions Committee also held an inquiry into charging for pension transfer advice.
“Using all this information, our policy team are now analysing if and what action we may need to take.
“If we consider that rule changes are appropriate, we will consult on any new proposals in the summer of 2019.”
Tom McPhail, head of policy at Hargreaves Lansdown, said: “Much of the FCA’s regulatory agenda on pensions looks like business as usual, with no surprises or new policy announcements; everything set out in their business plan for the retirement market has already been flagged up elsewhere.”
Industry concerns over drawdown ‘rememdies’
The FCA also said that the review into retirement outcomes highlighted that consumers entering drawdown often struggle to make investment decisions or do not engage with the topic enough to do so.
The UK financial watchdog is to publish a second policy statement setting out the rest of the retirement outcome reviews after its consultation, which finished earlier this month.
The Personal Investment Management and Financial Advice Association (Pimfa) said in response to the consultation: “We have a general concern that these remedies will, in effect, unintentionally dis-incentivise individuals to engage with their pensions.
“You will recall that, prior to the introduction of pension freedoms, a large proportion of consumers bought retirement income direct from their existing providers without seeking better deals on the open market.
“Our concern with the roll out of investment pathways is that many of the consumer behaviours which you have previously sought to eradicate from the retirement market will be repeated with the roll out of investment pathways.”
Hargreaves’ McPhail echoed this sentiment and added: “We worry the proposed remedies may not achieve the outcomes the FCA intends.
“They may perpetuate customer disengagement and paper over the income withdrawal risks, leaving investors potentially exposed to as much or even more risk than if the pathways hadn’t been introduced.”
