Trustees told to step up as FCA contingent charging ban takes effect
Trustees are set to have an increased duty of care to ensure employees and members make informed choices when accessing their pension, according to Wealth At Work.
The financial education provider said the Financial Conduct Authority's ban on the use of contingent charging for defined benefit (DB) transfers will see schemes and trustees take more of the load of ensuring access to suitable advice.
The ban - set to be enforced from 1 October - is set to remove potential conflicts of interest that arise when a financial adviser only gets paid if a DB transfer goes ahead.
While trustees are under no legal obligation to provide access to regulated financial advice, Wealth At Work director Jonathan Watts-Lay said: "It is only when advice is received that the individual knows whether a transfer is appropriate for them or now. However, there are steps before regulated financial advice which an individual can take, and this is where trustees and employers can ensure a much more robust process is put into place."
Watts-Lay suggested the use of a financial education and guidance triage service, which would provide an individual seeing a DB transfer with the "generic upsides and downsides" of the process and outcomes.
"These have to be presented in a completely balanced way so as not to influence the individual one way or the other which is best," he added.
"Trustees have a duty of care in providing financial education and guidance to members at retirement can help them understand their options and avoid any risks including those associated with DB transfers, such as falling for a scam, buying inappropriate retirement products, paying more tax than necessary, and ultimately running out of money."
Simply referring members to a list of financial advisers to choose from could be damaging for a scheme as well, with Wealth At Work citing the likelihood of "significantly poor member outcomes" and member distrust.
"In some cases, this can result in reputational damage as seen with British Steel," Watts-Lay said. "Schemes should instead step up and ensure that reputable firms are sourced which have been subject to thorough due diligence, as well as agreeing consistent and fair pricing."
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