Can I stop an old financial adviser taking £60 a month from my pension? STEVE WEBB replies

I am now 55 years old and I went to a pension advisor. I mentioned that I had gone to a financial advisor over a decade ago who set up my pension in the first place, although it seemed strange that I hadn’t heard from him since.

I was told to check that they weren’t still charging fees, so I checked with my pension provider, a large, well-known company where my first adviser set up my pension, and it appears they were charging over £60 a month for basically nothing.

So I estimate this has cost me thousands of pounds without any contact from my advisor. I have contacted the pension provider again and they will contact me.

Should I contact the Ombudsman as this seems like theft, and should I be able to claim compensation as without the commissions my pension would be considerably higher?

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Steve Webb responds: Their experiences relate to a big change to the way pension advice is paid for which was implemented in 2012. You may hear this referred to as the ‘Retail Distribution Review’ (RDR).

Before 2012, pension advice was generally “free” to the client. Instead of the client paying, the financial advisor would 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 with money from your pension.

You have sent me the information you received from your pension provider and this indicates that a relatively large initial fee (over £2,000) was charged in 2011.

Presumably this covered all or most of the cost of the original advice.

But since then, he has been paying a smaller regular fee, which is probably a percentage of his (growing) pension fund. At first this was around £30 per month, but more recently it has increased to over £60 per month.

While your pension provider’s annual statements would have shown you the total charges you were paying, these would have included the normal “annual management charge” on your policy, and you may have had to look pretty hard to spot that that ongoing commission was being paid. taken too.

A lot depends on the original deal that was struck as to whether this is simply intended to cover basic record keeping etc., or whether it was also supposed to cover some kind of ongoing support (e.g. around your investment).

Therefore, you should ask your original financial advisor for a copy of the services they promised to provide you when you purchased the product.

How has payment for financial advice changed?

Before 2012, the Government looked at this fee-based model of paying for pension advice and became increasingly concerned that financial advisers might have mixed motives.

While some advisers would simply have wanted to do what was best for their clients, others may have been tempted to choose a pension company that paid the best commissions.

To try to overcome this potential for bias, the Government abolished the commission on pension sales at the end of 2012.

Since then (with some limited exceptions), if you want pension advice you must pay for it up front and your adviser receives no commission from the pension provider.

The question then was what to do with policies, like yours, that were taken out before the rules changed and whose agreement was that you would pay a constant 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 ‘track’ commission to continue after 2012, while banning it for new pension sales.

However, it is worrying that you appear to have had no idea that for the last decade or more your pension provider has been deducting a commission of hundreds of pounds a year from your pension and that you have apparently not received any services during this period . .

What actions can you take now?

The Financial Conduct Authority provides guidance on its website on rules surrounding this ongoing commission or ‘clue’.

As you will see, whilst it is not automatic that these payments can be stopped, the FCA sets out a few things you can do.

The key options are:

– You could sell the investment (ending the policy) and then reinvest the money elsewhere; However, as this is a pension policy, this may not be simple;

– You can request better service from your advisor or switch the product to another advisor who would then receive the “trail” commission, but who might be willing to offer you more for the money;

– You can try to “claim” part of the commission and if your current advisor refuses to do so, consider switching to another advisor who might be more willing to do so.

The FCA has continued to investigate the fact that people continued to pay “tracking” fees for years after the rules changed in 2012.

In 2016 he ended this form of fee for pensions held on investment ‘platforms’, but it appears his pension was not covered by this change.

In 2017, the FCA said it would be open to further evidence on whether all forms of monitoring commission should be ended, but said it was concerned this could be unfair to “self-employed advisers who rely on this source of income.” “.

In 2018, the FCA said that although he was ‘…still considering the issue (we) have no immediate plans to submit proposals for policy changes at this time.’

As you know, in your case the monitoring commission has continued until this year.

Now that you know that this fee is deducted from your pension every month, you are in a position to take the steps outlined above by the FCA.

I encourage anyone who received a pension before the end of 2012 to check if they are also in this situation.