IFAs Accused of Giving Pension Savers Bad Advice
Published: 20 July 2011 By Julian Stone Leave a Comment
A new report by Consumer Focus shows that some consumers are being advised by Independent Financial Advisers to switch pension products – as IFAs take advantage of “trail commission” to boost their incomes.
Pensions are essential to most people’s retirement – and it’s because of their importance that we’re more likely to seek financial advice when looking for the best deal to secure our financial future.
But now, watchdog Consumer Focus has released a report showing that some people are being advised by IFAs to switch to different pension products, despite many having higher fees and greater risk – charges that could wipe thousands of pounds from a pension fund’s value.
The report also highlighted the growing trend for pension products to charge ongoing fees, also known as “trail commission”.
According to the report, however, customers do not fully understand whether trail commission is charged for an ongoing service or is simply a deferred fee.
This confusion has been made worse by the report’s finding that more than 50% of those paying trail commission hadn’t received any additional service from their IFA in the last two years.
It has been estimated that pension funds pay out between £200 million and £800 million in commission to IFas every year with a quarter of this amount just trail commission for policies already sold.
Christine Farnish, Chair of Consumer Focus, commented, “Too many consumers are being persuaded to switch their pension into different pension products which may well leave them worse off.”
But IFAs have hit back at the report, accusing it of being “very thin on evidence” to support its claims, which are based on “conjecture and speculation”.
Moneyhighstreet comments: “This report is another reminder that with fewer saving for retirement and private sector pensions taking a beating in the markets, consumers must be cautious when investing in a pension fund.
“Trail commission, upfront fees and higher risk can all affect the resulting value of a pension fund – and also your retirement. So while it’s important to seek independent financial advice, it’s also important to compare multiple options to find the best deal.”