The Financial Conduct Authority has been given a role by the government to outline standards that the Pensions Advisory Service (TPAS) and Money Advice Service (MAS), among other independent bodies, will have to adhere to when providing guidance to pensions savers under the government's new 'guidance guarantee' commitment. The standards will apply to the independent bodies despite the fact they will not be formally regulated by the FCA.
In a new consultation, the FCA has proposed "principles based" standards (45-page / 291KB PDF) to govern the way in which the independent 'delivery partners' should act when offering guidance under the government-backed scheme.
Among the standards that the FCA has proposed is an obligation that delivery partners "deliver the guidance with due skill, care and diligence" as well as consistently and with good quality across the different channels they choose to deliver it via, such as face-to-face or online.
On Monday the UK government announced plans to give consumers more freedom and choice when they gain access to their pensions. The new regime, which will come into force in April 2015, will allow members of defined contribution (DC) pension schemes to access their savings in any way that they wish from the age of 55, subject to their marginal rate of income tax and without necessarily having to purchase an annuity
Under the plans, pension providers or scheme trustees will be required to point savers towards the free guidance service on offer. The free guidance will be provided by independent bodies such as TPAS and MAS, although these delivery partners will be required to inform savers of the availability of more formal financial advice, which would have to be paid for by the consumer, should the individuals feel they need some assistance in deciding what to do with their pension pot.
The government has banned product providers from offering guidance to consumers on what to do with their pension pots at the point they become eligible to access them to avoid any potential conflicts of interest arising. Only bodies designated by the Treasury as 'delivery partners' will be able to provide guidance under the scheme. Those organisations will fall subject to the new standards regime, although they will not be regulated by the FCA.
Under the draft standards to be set by the FCA, delivery partners must ensure that those who "approve the design of any processes and tools, including web-based material [or] deliver the guidance over the phone or in person are competent and have sufficient knowledge and expertise to deliver the guidance or design any processes and tools" and have controls and systems in place to achieve the standards the FCA sets.
Delivery partners must request information about consumers' "financial and personal circumstances that would inform the discussion" and present "relevant options and the key facts and consequences for each option" and set out issues for consumers to consider based on the information they provide.
"This could cover life expectancy, the danger of running out of money during retirement and possible long-term care needs," the FCA said.
The delivery partners would also have to point consumers towards other sources of information, guidance or advice and ensure those "signposts" are "impartial, consistent, relevant and of good quality". The companies would be prohibited from recommending "specific products, providers or financial advisers" but instead would "empower consumers to find further sources of information, a product or specialist advice; for example, by referring the consumer to a directory of advisers".
Financial services firms will pay a levy to fund the scheme as they are likely to "benefit from more engaged consumers" as a result of the guidance guarantee, according to the FCA's paper.
Financial services expert Tobin Ashby of Pinsent Masons, the law firm behind Out-Law.com, said that the proposed standards "seem broadly sensible" but said that details about the FCA's approach to assessing compliance with the standards still needs to be fleshed out.
"Whilst there are standards relating to complaints about the service, it isn’t clear from the FCA’s consultation how it will ensure that the delivery partners adhere to the standards," Ashby said. "The FCA has kept in its comfort zone on supervision, with focus in the paper on supervision of regulated firms, for example on sign-posting the availability of the guidance service and not undermining it.”
“The Treasury has said that the FCA will be given appropriate duties and powers to monitor compliance with the standards they set and the regulator will need to establish its approach to bodies it is monitoring, but not regulating. There are references to ‘systems and controls’ for example and it will be interesting to see how these can be enforced in a non-regulated context. Clarity on these elements will be important to the perception and arguably the success of the standards.”
The FCA's consultation is open until 22 September.