Carve Out Contingent Charging Pension Transfer Advice If You Cannot Afford Fees

With effect from October 2020, contingent charging on defined benefit pension transfers is banned.

What is contingent charging?

This is when a financial adviser will offer a review of your pension scheme and only charge you a fee if the pension transfer proceeds. The Financial Conduct Authority believes that this may lead to poor advice outcomes for you as a consumer because the adviser may lean towards recommending a transfer as this is the only way they will get paid.  Hence the ban. In short, financial advisers should charge the same fee whether the advice is to keep your defined benefit pension scheme or transfer it.  This could be many thousands of pounds.

What if I cannot afford to pay advice fees?

The regulator recognises that for some people, this may put them in an extremely difficult position if they cannot afford to pay for pension transfer advice and that they really need to secure that advice.  To cope with this advisers are allowed in circumstances to offer a ‘carve out’ on advice fees.

What are ‘Carve Out’ Pension Transfer Advice Fees?

‘Carve out’ is where contingent charging is still allowed i.e. you only pay fees if a pension transfer proceeds but there are some strict conditions:

Where you have a life limiting illness or a life expectation of 75 years old or below.

Ideally you would need to provide medical evidence.  It may be difficult to provide all medical evidence as many doctors are reluctant to give you ‘bad news’ as they clearly want you to remain positive in the hope of a treatment or cure.  Therefore, the regulator will allow you to ‘self certify’ i.e. confirm in writing what your position is and how you have reached the conclusion of limited life expectancy.

Serious Financial Difficulty where you need advice but have no means to pay any fees.

The regulator has offered examples of what they believe people to be in serious financial difficulty are.  The adviser should verify your income and asset position.  The FCA only really expect those that are receiving benefits to use this route and evidence will need to be provided about why you cannot afford advice fees. 

Evidence of serious financial difficulty could be:

• Unable to make payments on mortgage, rent, debts, council tax or utility bills for 3 months of the last 6 months.
• All non-essential spending has been ‘cut out’ e.g. no need for TV subscriptions, gym membership etc
• You should be at least 54.5 years old i.e. you only have to wait a maximum of 6 months (age 55 years) to access your pension fund

In both serious ill-health/shortened life expectancy or serious financial difficulty, the FCA will expect both you and your adviser to provide evidence with bank, investment and income statements that you have no ability whatsoever to be able to pay any advice fee and they would normally only expect this to be those people  who are receiving Universal Credit, Job Seekers Allowance, Employment Support Allowance, Income Support, Housing Benefit and Pension Credit and evidence of the same.  In addition, your adviser should not include ‘credit’ as a means to pay for your advice, any credit facilities can be ignored.  The FCA does not want you to borrow to pay for advice given that you may already be in serious financial difficulty.