Pension savers switched to new products to generate commission

Financial advisers get up-front fee – even where transfers or new pensions are inappropriate – Consumer Focus finds Consumers are being “churned” into different pension products, often with higher charges or risks, to generate commission for their financial advisers, according to Consumer Focus. The consumer champion says much of this churn is not appropriate and could leave consumers worse off in retirement. The report said that in every case where a pension was transferred or a new pension taken out the adviser received an up-front payment. In the cases it looked at where the fees and value of the pension pots were outlined, the average value transferred was £33,400 and the average fee £1,552 – the equivalent of 4.6% of the value of the fund. Consumer Focus is urging the Financial Services Authority and pensions minister Steve Webb to act to improve the personal pensions market and protect consumers from making a costly mistake with their retirement savings. In its report, Consumer Focus also criticised the trend for products to pay ongoing fees, or trail commission, to advisers, even if they had not reviewed a customer’s investments. The report found that pension companies paid between £200m and £800m in commission a year, of which an estimated 25% was trail commission. Deducting this from investments resulted in the saver ending up with a smaller pension pot. The report also found that disclosure of costs and charges was complex and opaque, making it virtually impossible for consumers to shop around or know what represented good value for money. Christine Farnish, chair of Consumer Focus, said the investigation showed “that practice in the individual personal pensions market still leaves much to be desired”. She added: “The complexity of costs and charges, despite years of work by regulators on disclosure, make it all too easy for savings that should be going into a pension pot to be siphoned off in costs and charges. This complexity makes it impossible for consumers to judge price, and shop around for a good deal as they would in other markets.” Farnish called on the FSA to “get a grip on this market” and asked the government to review its policy on transfers into the new National Employment Savings Trust (Nest) scheme. The scheme, which will to be introduced next year and into which workers will be automatically enrolled when they start a new job, will not allow transfers in. However, Consumer Focus said this needed to be rethought. “Allowing basic-rate taxpayers with small pots to transfer into Nest would help around 2 million modest earners to build up bigger retirement savings, and prevent unfairness from developing between new savers and people who bought private pensions before Nest was available,” it said. Ros Altmann, director general of Saga, believes transfers have been blocked as a sop to the private pensions industry: “If Nest is allowed to accept transfers, there will be more of an incentive for private firms to improve the way they behave, but so far the government has bowed to industry pressure and stopped transfers into Nest, for fear that too many private companies will lose this lucrative business.” However Tom McPhail, head of pensions research at advisers Hargreaves Lansdown, has taken issue with some of the group’s recommendations. “Not all the recommendations in this report would improve investors’ chances of achieving a decent pension. Most of the necessary reforms are already in place: they should be allowed to work through the system before any further tinkering is contemplated.” McPhail said that while Consumer Focus was right to say trail commission should not be paid where there was no ongoing service, scrapping it entirely was not the answer. “Trail commission on pension contracts is there for a purpose, it is intended to reward an intermediary for servicing an investor’s retirement saving arrangement,” he said. “Scrapping trail commission altogether is not the answer because consumers still need ongoing support in planning and managing their retirement savings.” Pensions Retirement planning Financial advisers Family finances Retirement age Work & careers Hilary Osborne guardian.co.uk

Posted by on July 20, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.