Personal pension advice criticised by Consumer Focus

FT and pen
Image caption Sales seem to be influenced even more than before by the commission advisers earn

People who want to set up personal pension plans are at risk of bad advice and paying high levels of hidden commission, says Consumer Focus.

The government body has drawn the conclusion after investigating the way personal pensions are sold.

It found examples of people being badly advised to switch their pensions to policies charging high commission.

It estimates that on-going fees to advisers, called trail commissions, are now costing consumers £200m year.

Consumer Focus said its enquiries revealed "serious problems" and called on the Financial Services Authority (FSA) to take action.

It used its legal powers to gather information from IFAs and pension firms, and carried out an online survey of 1,001 adults who had taken out a personal pension policy.

'Worse off'

Christine Farnish, chair of Consumer Focus, said the regulator needed to "get a grip" of these problems, which makes it "impossible for consumers to judge price, and shop around for a good deal as they would in other markets."

"Too many consumers are being persuaded to switch their pension into different pension products which may well leave them worse off," Ms Farnish said.

"Others are signing up to paying trail commission to their advisor for the life of the product - which may be decades - without receiving any tangible benefit," she added.

Consumer Focus said the payment of trail commission to independent financial advisers appeared to be increasing, in advance of it being banned under the implementation of new industry regulations in 2013, known as the Retail Distribution Review (RDR).

One of the aims of the RDR is to ban advisers from taking commission, to stop them making biased recommendations and sales to their clients.

The consumer body said it wanted the FSA to carry out a wide investigation of the churning of personal pensions, to stop mis-selling.

And it said the new Financial Conduct Authority (FCA), due to come into force by the end of 2012, should make sure that the sale of pension policies was on terms that were "clear and understandable" to the public.


The Financial Ombudsman Service (FOS) said last year it had received only 2,706 complaints about pensions, and only 25% had related to independent financial advisers.

But where people did complain, it was often about unnecessary advice to switch from one policy to another.

Tony Boorman, principal ombudsman at the Financial Ombudsman Service said: "Complaints about personal pensions are some of the most entrenched and complex that the Financial Ombudsman is asked to resolve."

"The financial amounts involved are often significant and the cases are commonly hard-fought by both sides," he added.

Related Internet links

The BBC is not responsible for the content of external Internet sites