Concerns raised over personal pension sales and costs

THE City watchdog has been urged to do more to protect consumers from bad advice on personal pensions after an investigation uncovered "serious problems" in the market.

In a report published today, Consumer Focus said investors are being switched to different pensions for little or no benefit, with many exposed to greater risk or higher costs as a result.

Much of the switching is due to financial advisers "churning" pension plans to boost commission payments, it claims.

The investigation found that the number of advisers charging trail commission (ongoing fees) has increased in the past year, despite a curb on commission coming into force on 1 January 2013 as part of the retail distribution review (RDR).

Trail commission is designed to reward ongoing service, but some consumers have paid it even where that hasn't been provided, according to Consumer Focus. People buying contracts before RDR comes into force will continue paying trail commission beyond that date, it pointed out.

And the complexity of charges and costs makes it difficult for consumers to effectively compare different pensions, Consumer Focus said. It has written to the Financial Services Authority calling for more action to tackle consumer detriment in the personal pensions market.

The regulator should also investigate the churning of pensions by IFAs in order to identify mis-selling, and take steps to make the real cost of pension contracts easier for people to understand, according to the group.

Christine Farnish, chair of Consumer Focus, said: "The complexity of costs and charges - despite years of work by regulators on disclosure - make it all too easy for savings that should be going into a pension pot to be siphoned off in costs and charges.

"This complexity 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."

The Financial Ombudsman Service received 2,706 new complaints about pensions last year, two-fifths of which were upheld in favour of the consumer. Most of the complaints related to advice around pensions, particularly switching. But Maggie Craig, director of life and savings at the Association of British Insurers, said: "Consumer Focus are behind the pace with this report.

"As with switching your energy supplier, sometimes shopping around can make sure you get a better deal for your savings. The retail distribution review will help consumers compare the cost of financial advice and financial products."

Tom McPhail, head of pensions research at Hargreaves Lansdown, said: "Unfortunately not all the recommendations in this report would improve investors' chances of achieving a decent pension."Most of the necessary reforms are already in place; they should be allowed to work through the system before any further tinkering is contemplated."