I’m now 55 so I went to a pension adviser. I mentioned I had been to a financial adviser more than a decade ago who set up my pension in the first place, although I thought it strange that I had not heard from them since.
I was told to check that they were not still taking a fee so I checked with my pension provider, a large well-known business where my first adviser set up my pension, and it seems that they were taking more than £60 per month for basically nothing.
So, I estimate this has cost me thousands of pounds without any contact from my adviser. I contacted the pension provider again and they are going to get back to me.
Should I contact the Ombudsman as this seems like theft and should I be able to seek compensation as without the fees my pension pot would be considerably higher.
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Steve Webb replies: Your experiences relate to a big change in the way that pensions advice is paid for which was implemented in 2012. You may hear this referred to as the ‘Retail Distribution Review’ (RDR).
Prior to 2012, pensions advice was generally ‘free’ to the customer. Rather than the customer paying, the financial adviser would instead receive a commission from the pension provider.
The advantage of this system is that more people were willing to seek advice because they did not have to pay for it up front. But obviously nothing is really ‘free’ – you end up paying for it by having money taken out of your pension.
You have sent me the information you have received from your pension provider and this indicates that a relatively large initial commission figure (over £2,000) was taken back in 2011.
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This presumably covered all or most of the cost of the original advice.
But since then, you have been paying a smaller regular amount of commission which is likely to be a percentage of your (growing) pension pot. At first this was around £30 per month but more recently this has risen to over £60 per month.
Whilst your annual statements from your pension provider would have shown you the total charges you were paying, these would have included the normal ‘annual management charge’ on your policy, and you might have had to look quite hard to spot that ongoing commission was being taken as well.
Much depends on the original deal that was done as to whether this is simply meant to cover basic record keeping and so on, or whether it was also supposed to cover some sort of ongoing support (for example around your investment strategy).
So, you should ask your original financial adviser for a copy of what services they promised to provide when you took out the product.
How has paying for financial advice changed?
Before 2012, the Government looked into this model of paying for pension advice through commission and became increasingly concerned that financial advisers might have mixed motives.
Although some advisers would simply have wanted to do the best for their clients, others may have been tempted to choose a pension company that paid the best rates of commission.
To try to overcome this potential for bias, the Government abolished commission on pension sales at the end of 2012.
Since then (with some limited exceptions), if you want pension advice you have to pay for it up front, and your adviser does not get a commission from the pension provider.
The question then was what to do with policies – such as yours – which were taken out before the rules changed and where the deal was that you would pay a steady level of commission for years after the sale?
It was felt at the time that it would have been unfair if the Government had simply scrapped these contracts, so instead they allowed this ‘trail’ commission to continue post 2012, whilst banning it for new pension sales.
However, it is worrying that you seem to have had no idea that for the last decade or more your pension provider has been deducting commission of hundreds of pounds per year from your pension and also that you have apparently not been getting any service over this period.
What action can you take now?
The Financial Conduct Authority provides guidance on its website about the rules surrounding this ongoing or ‘trail’ commission.
As you will see, whilst it is not automatic that these payments can be stopped, the FCA sets out some things that you may be able to do.
I would encourage anyone who has a pension taken out before the end of 2012 to check if they are also in this position
The key options are:
– You could sell the investment (ending the policy) and then reinvest the money elsewhere; however because this is a pension policy this might not be straightforward;
– You can ask for a better service from your adviser – or switch the product to a different adviser who would then receive the ‘trail’ commission, but who might be willing to offer you more for the money;
– You can try to ‘claim back’ some of the commission and, if your current adviser refuses to do so, consider switching to another adviser who might be more willing to do so.
The FCA has continued to look into the fact that people have gone on paying ‘trail’ commission for years after the rules changed in 2012.
It brought this form of commission to an end for pensions held on investment ‘platforms’ in 2016, but it seems that your pension was not covered by this change.
In 2017 the FCA said that it would be open to further evidence as to whether all forms of trail commission should be ended but said that it was concerned that this could be unfair on ‘self-employed advisers who rely on this source of income’.
In 2018 the FCA said that although it was ‘…still considering the issue [we] have no immediate plans to bring forward proposals for policy change at this point’.
As you know, in your case, trail commission has continued right up to this year.
Now that you are aware that this commission has been coming out of your pension every month you are in a position to take action as outlined above by the FCA.
I would encourage anyone who has a pension taken out before the end of 2012 to check if they are also in this position.
