The Financial Conduct Authority (FCA) has hit back at claims advisers were being allocated disproportionate fees to fund Pension Wise, saying their contribution amounted to no more than 0.01% of their income.
The Association of Professional Financial Advisers (APFA) had told the FCA the current contribution by advisers in the A.13 'fee-block' - set at 12% of the running cost of Pension Wise - was "too high a proportion" and should be reduced to 5%.
Pension Wise is the government's free at-retirement service for those entering retirement in the post-pension freedom world. It is funded by five industry groups the regulator deems to be benefitting from the service.
The FCA set this year's funding requirement for the service at about £22.5m, of which advisers will contribute £2.7m.
The FCA previously admitted advisers only benefit from Pension Wise if consumers receiving the service go on to seek advice and, as such, reduced the allocation to 12%. It had initially wanted it to be about 30%. This was in contrast to the other four fee-blocks, including providers, that benefit from the pension flexibilities regardless.
In its response to the regulator's levy consultation, APFA told the FCA that adviser contributions towards Pension Wise should be cut because of a low take-up of advice following the guidance sessions and the fact that a "vast majority" of pension pots were below £50,000 and therefore paying for full advice was "unlikely to be economic for most consumers".
APFA research published in March showed about 69% of advisers said they had turned clients away in 2015 (up from around 60% in 2014 and 50% in 2013), with most of them saying either the service offered was uneconomic for the client or servicing the client would be unprofitable for the firm.
Nearly 60% of advisers who turned away clients told APFA the enquires were pension-related. APFA members also claimed they have seen only a small increase in demand for their services since the pension reforms.
Separately, official figures had indicated a low take-up of Pension Wise altogether. However, the FCA said it could not substantiate some of the data APFA had referred to. It told the trade body there was, overall, an absence of data needed to inform the allocation of the Pension Wise funding requirement across all fee blocks.
It also said its own research had shown pension pot size was a "relatively less important factor" in an adviser's considerations about whether to take on a customer seeking retirement income advice.
"A customer's personal circumstances and other assets and liabilities, as well as the potential for a future relationship with the customer, were the most important factors considered," the FCA said.
The regulator said it would reconsider how to allocate funding to pensions guidance once a new providing body has been set up in April 2018, as first announced by the government in March. It also rebuffed claims advisers' contributions were too costly for firms.
It said: "The A.13 fee-block contains a very diverse spread of types of firms. These include banks, insurance companies, securities brokers who act for retail clients and wholesale market brokers as well as financial advisers.
"We estimate that around 3,108 financial advisers, whose main business is to provide advice on retail investment products, will contribute £270,000 (10%) of the £2.7m Pension Wise funding requirement allocated to the A.13 fee-block.
"This means that these firms contribute 1.2% of the total £22.5m Pension Wise funding requirement. The £270,000 contribution represents 0.01% of the £2.8bn income these firms report for fees calculation purposes.
"We are therefore continuing with the allocations unchanged from CP16/9."
