Bamford warns ECJ ruling may drive pension churn

The ECJ’s ban on gender-based insurance pricing may encourage more pension churning when combined with the effects of the RDR, Martin Bamford warns.

On 1 March, the ECJ ruled it is discriminatory to use gender as a basis for actuarial valuations. The move is likely to affect annuity rates and other pension incomes, and advisers are preparing to review all clients' retirement plans.

Advisers expect increased competition between insurers in the run-up to the ban coming into effect on 21 December 2012.

Bamford, managing director of Informed Choice, says the ban may encourage IFAs to churn pensions for commission, particularly if they are planning to exit the industry when the RDR comes into effect.

"There will be some opportunistic IFAs looking to maximise their commission earnings before now and the end of next year," says Bamford.

"People need to review their retirement planning as a result of the ECJ ruling, but this needs to be a genuinely independent and impartial review, rather than a thinly veiled excuse to churn pension funds.

"The only way to ensure impartiality is for the consumer to pay a fee for advice, so there is no commercial incentive to recommend a possibly unsuitable transfer."

Bamford also warns the FSA is on the lookout for pension churning as the RDR draws closer.

In February, the FSA's Retail Conduct Risk Outlook said it expects advice firms to attempt to maximise revenue streams to help facilitate their transition to the RDR.

"In some cases firms may do this in ways that produce poor outcomes for consumers," the FSA says in the paper.

The regulator warns providers may use the run-up to the RDR to acquire larger market shares by offering large commissions to firms.

It also says advisers looking to sell their businesses ahead of the RDR may attempt to build up their books to make their businesses more attractive.

"We have heightened our supervisory vigilance in this area and will continue to intervene where we believe high commission levels may be contributing to poor outcomes for consumers," the FSA says.