Consultation: Pension transfer advice: contingent charging and other proposed changes


This consultation paper from the Financial Conduct Authority sets out proposed measures to change how advisers manage and deliver pension transfer advice, particularly for defined benefit (DB) to defined contribution (DC) transfers. It is consulting on banning contingent charging and making other changes to our rules and guidance.

Significant numbers of DB scheme members have transferred to DC schemes since this was allowed in 2015. The FCA believes, given the advantages of DB pensions, the proportion of consumers advised to transfer is too high and many of these transfers will not have been in consumers’ best interests.

It is concerned that too many advisers are delivering poor advice, much of it driven by conflicts of interest in the way they are remunerated. In particular, the practice of contingent charging where advisers only get paid if a transfer proceeds creates an obvious conflict.

Most consumers are advised on a contingent charging basis. The FCA found that 69% of consumers are advised to transfer despite its view that most customers would be best advised not to transfer. It  estimates that the harm created by unsuitable DB transfer advice is up to £2bn each year.

As a result of this, FCA intends to intervene to protect consumers by banning advisers from using contingent charging except for a small group who it considers are likely to benefit from a transfer. There is also a significant conflict arising where clients sign up for an ongoing advice proposition. This can result in charges being paid throughout a 20 to 30-year retirement period. So it is also consulting on proposals to address the conflict of interest created by ongoing charges.

The consultation closes on 30 October 2019.