Churning and high fees benefit providers and advisers, but are often bad for people's pensions
Good advice is worth paying for, but customers don't understand how to differentiate
FSA failing to protect against damage done by churning and trail commission:
Consumer Focus is calling on the FSA to finally sit-up and take notice of the bad practices that are doing such damage to ordinary people's pensions. The report highlights the continued prevalence of customers being 'advised' to transfer their pensions to another provider. Such 'churning' will pay huge amounts of initial commission to an adviser, but will often serve to diminish the pension pot of the individuals concerned. Apparently, there is an even greater amount of such churning at the moment, perhaps ahead of the coming changes in commission structure for advisers.
The problem of 'trail commission' whereby advisers are paid a percentage of each client's pension fund every year, is once again highlighted and the FSA has still not properly addressed the problem.
Mass market needs good advice, but doesn't get it:
Good advice is definitely worth paying for, but unfortunately many in the mass market - especially those with small pension pots - do not get good advice at all. They are often encouraged by advisers to transfer to another pension company and do not realise how much commission this will generate for the adviser, nor do they understand how trail commission works and that this adviser will keep receiving money every year from their pension fund, even if they no longer speak to the customer at all.
Lack of transparency and complexity too confusing for customers:
Commission payments are not clearly disclosed and most customers remain unaware of the sums that their adviser is paid. They do not know how to compare prices across products and many examples of poor practice have been highlighted.
Pensions already have a bad name, FSA far too slow to react:
Pensions already suffer from lack of confidence and trust and more reports like this will merely serve to damage pensions further. When will the Regulator act to protect customers properly? So far, they have allowed companies and advisers to act against customer interest without taking firm enough action.
Middle Britain loses out most:
It is the ordinary citizen who suffers. High net worth individuals, with good advisers, are fine and looked after well in many cases. But mass market pension owners do not get access to good advice and do not even know how to find it. They end up with worse pensions as a result, yet they are the very people who most need to be helped to maximise their pension savings.
Consumer Focus should not be scrapped - customers need its protection:
This report is another example of the important work that Consumer Focus carries out on behalf of UK consumers. This body has stood up to big companies, in energy or finance, to try to highlight poor practice, yet the Government wants to abolish it. That would be terrible for the 'people-in-the-street' who need a strong body to champion their interests. Government should reconsider its decision urgently, so that Consumer Focus can keep up the pressure on companies who take advantage of innocent customers.
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