FCA to update pension rules and guidance for 'new retirement market'

Out-Law News | 05 Oct 2015 | 4:52 pm | 2 min. read

The Financial Conduct Authority (FCA) is to overhaul its rules and guidance for pension providers to improve consumer choice at the point of retirement and ensure they are adequately protected.

Among the measures set out in a detailed consultation paper are new requirements for providers to supply "timely, relevant and adequate" information about the options available to their customers as they near retirement; and additional guidance for those looking to access their pensions more flexibly. It is also revisiting the retirement risk warnings introduced without consultation earlier this year, including less stringent rules where the consumer has a pension pot of £10,000 or less and has no safeguarded benefits.

"Pensions are of fundamental importance and it is vital that the market works well for consumers," said Christopher Woolard, the FCA's director of strategy and competition. "Our proposals are designed to ensure that consumers have access to products and services that are well governed and deliver value for money following the government's pension reforms."

The FCA has also asked for views on areas where it is contemplating further action, such as whether to ban commission on the sale of non-advised annuities and possible changes to the product disclosure regime. The regulator will "continue to monitor that market as it evolves" to "ensure that firms are helping consumers get the best outcome in retirement", Woolard said.

The consultation comes six months after members of defined contribution (DC) pension schemes were given more freedom to access their savings in any way that they wish once they turn 55, without incurring heavy tax penalties or necessarily having to purchase an annuity from an insurer. The consultation also acts as a follow-up to the regulator's retirement income market study, which concluded in March.

Those accessing the new freedoms are entitled to free guidance from the government-backed Pension Wise service at the point of retirement. However, this service does not provide regulated financial advice. In February, the FCA announced that the pension providers it regulates would be required to provide personalised risk warnings to their customers before they could take advantage of the new freedoms, in order to ensure that those customers who chose not to take regulated advice received enough information to make a decision.

The new consultation confirms that the FCA intends to retain the retirement risk warnings requirement, but only in respect of consumers with over £10,000 in pension savings or with 'safeguarded' pension benefits. Where the consumer has a smaller pension pot, the provider will only have to ascertain whether they have contacted Pension Wise or received financial advice and will not have to personalise the risk warnings by asking them about certain risk factor triggers.

The FCA also intends to develop guidance on the application of its existing rules in the context of pension reforms, including illustrative examples. It has also proposed amendments to its definitions of 'certified high net worth investor' and 'restricted investor' certification criteria to exclude income as a result of lump sum pension withdrawals, except where the withdrawal is intended as income in retirement.

Pension law expert Tom Barton of Pinsent Masons, the law firm behind Out-Law.com said that the regulator's consumer protection agenda was at the heart of the consultation proposals, which were headed in the "same direction of travel" as this month's updated consumer protection legislation.

"Much of this is prompted by the Freedom and Choice reforms; whether in the context of investment strategies, advice or distribution," he said. "It is understandable that both industry and the regulator are still getting to grips with all of this given the lack of notice or consultation before implementation; and we shall have to see quite how the industry and regulator will cope if there is more wholesale change as a result of the Treasury's recent consultation on tax relief."

"The ongoing question mark over what constitutes advice and what constitutes guidance is not helping consumers. Firms that are well-placed to help consumers are not easily able to do so, without running the risk of providing regulated financial advice," he said.