The Work and Pensions Committee this morning published a report saying that, "another major mis-selling scandal is already erupting" on defined benefit pension transfers.
The committee said the FCA should scrap a proposal that would stop advisers starting from the presumption that a DB transfer is a bad idea for their client.
The committee's ongoing inquiry into pension freedoms saw "worrying evidence that British Steel Pension Scheme members have, over the past year, been exploited for cynical personal gain by dubious financial advisers in tandem with parasitical so-called introducers."
The report describes how many British Steel Pension Scheme members were "shamelessly bamboozled" into signing up to ongoing adviser fees and unsuitable funds characterised by high investment risk, high management charges and punitive exit fees.
Key recommendations for the FCA were:
- Ban contingent charging - a key driver of poor advice. Genuine independence is not compatible with a charging model that only rewards advisers for recommending a particular course of action
- Do not - as proposed in their 2017 consultation - drop the requirement on advisers to start from the presumption that a DB transfer is a bad idea for their client, in most cases it is. In light of the BSPS experience abandoning this safeguard looks reckless.
- Create an online register of advisers and their current status in providing advice that does not require "a degree and orienteering skills" to use
The committee called on the "responsible authorities" to take urgent action.
Frank Field MP, chair of the committee, said: "I struggle to fathom how things like contingent fees are, or have ever been, considered an acceptable basis for providing 'impartial' advice on a decision like this. It is bad enough failing properly to enforce the rules there are, but when the rules are this weak?
"Our financial services regulator has been rejigged and rebranded but I can't see much evidence of it working better for the people it is meant to protect: individuals making life-changing financial decisions.
"To propose, as the FCA did in July last year, abandoning the advisor presumption against transferring out of a gold-plated, stable, indexed pension scheme: it really makes you wonder whose side they're on.
"Once again we find The Pensions Regulator fiddling while Rome burns, when it should have seen this rip-off coming. Given a choice between two defined benefit options worse that what they had been promised, with precious little support in making that choice, many steelworkers were drawn to the superficially attractive third option. This is the first deal like this, but there will be more. All the responsible authorities must act, now, to stop more people being cheated. We will be asking all those involved to report back to us on the changes they will make, promptly, to stop this happening again."
From March 2017 until now, the BSPS scheme has processed 2,600 pension transfers equating to a total value of £1.1bn, according to data revealed on 8 February by the scheme trustees, today's report stated.
The average value of BSPS pension benefits transferred out was £400,000. In around 20 cases the transfer value exceeded £1 million.
The committee heard of advice fees typically around 2% of the transfer value - and receiving funds sometimes imposing annual charges and 'punitive' exit penalties ranging from 5% to as high as 10%.