Crackdown on pension sharks ‘was botched’: City watchdog blasted for failing to protect workers from rogue advisers
The FCA has refused to crack down on fees for financial advisers who tempt customers into ditching lucrative workplace pensions
The City watchdog has been blasted for failing to protect workers from rogue advisers seeking to pocket vast fees from their pension pots.
Bosses at the Financial Conduct Authority have refused to crack down on fees for financial advisers who tempt customers into ditching their lucrative workplace pensions.
The fast-growing transfer market allows staff to pull out of a defined benefit pension for a lump sum up front.
Critics fear the current system is encouraging savers to squander their nest eggs.
MP Frank Field, chairman of the Work and Pensions Select Committee, said: ‘The FCA fails to take effective action.
Unscrupulous advisers are circling like vultures around consumers. It’s time the FCA took decisive action to prevent another mis-selling scandal.’
It is estimated that 100,000 people are transferring as much a £30billion out of their pensions every year.
Thousands of steelworkers were targeted in a mis-selling scandal last year.
Rogue advisers flocked to the steel heartland of Port Talbot, Wales, to tempt workers to transfer their retirement funds into riskier investments.
Chaos erupted after Tata Steel decided to close the British Steel Pension Scheme, with workers allowed to stay with the scheme as it went into the Pension Protection Fund, join a replacement set up by Tata, or transfer out.
Parliament’s Work and Pensions committee said contingent charging was a key driver of bad advice and should be banned.
Companies encourage it because it reduces the financial burden they face. In some cases workers have been offered 40 times their starting post-retirement income, meaning someone expecting a pension of £18,000 a year could get £720,000.
But taking the money is often a bad idea because workers are giving up a guaranteed income for life.
At present, advisers tend to only get paid if they convince someone to transfer out, in an arrangement called contingent charging.
Field and others claim this gives the advisers an incentive to persuade workers to transfer.
But after an investigation into transfers lasting almost two years, the FCA has decided not to make a change.
However, the watchdog will required advisers to have better qualifications and file more reports.
A spokesman said: ‘The responses to the FCA’s consultation confirm its initial analysis that the evidence does not show that contingent charging is the main driver of poor outcomes for customers.’
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