Mis-selling fears in the post-April 2015 world dominated this week’s news, as did ongoing discussions over what place digital services have in the market.
Here we round up the top 10 issues for advisers from the week in news.
1. Industry concern over drawdown pot sizes...
One of this week’s best read stories was on concerns that those with smaller pension pots will want to use drawdown when the new retirement freedoms come into play next April.
Data compiled by Prudential revealed that in the second quarter of this year the average drawdown pot size was £70,500, compared to £79,400 in Q1 2014.
It was previously widely considered that drawdown is not appropriate for pots that are smaller than £100,000, however recent coverage of annuities, falling rates and talk of unwinding contracts that are already in place, may have tarnished the annuity name.
Drawdown could therefore become more of a ‘default’ option, which turns a lot of existing assumptions on their head.
2. ... is not shared by the FCA.
It is clear this issue is leading to advice concerns, as at a Pensions Bill committee sessions this week, the FCA was asked several times about the likely need for major redress as a result of mainstream retirees ending up in higher risk products, such as drawdown.
However, the FCA’s David Geale said that RDR reforms would prevent the need for widespread compensation. You can guess how some advisers reacted to that.
Crucially, he also said that under current income drawdown arrangements, the regulator believes those with £50,000 are suitable for existing products in the market, adding this could go lower as a result of innovation.
3. Fears over timeline.
Pension experts raised fears this week that the timeline for the new at retirement freedoms - less than five months remain until they come in - will mean that consumers will suffer in the short-term.
At a pension panel debate, David Cartwright of Defaqto said he is still trying to visualise how the guidance guarantee will work to ensure consumers make informed decisions.
Jonathan Howe of PricewaterhouseCoopers and Hargreave’s Tom McPhail both admitted there are bound to be “bad outcomes” in the short-term. The FCA’s Rory Percival simply said: “The time frame is what it is... we can only work with what we’ve got.”
4. Blurred lines on digital’s place.
Much-scorned MP Mark Hoban said this week that people on lower incomes could be given access to a government-backed digital service which would provide information and catalyse savings.
He argued for digital technology forming a ‘retirement savings service’ that will give people the information they need to make decisions about how much they need to save to achieve the retirement they want.
However, Old Mutual’s Carlton Hood said at a Tisa conference that digital services will not solve the advice gap. He said that there is already lots of stuff on the web, but it was not “engaging”.
5. As one protection door closes...
This week, two providers announced they were stepping back from protection.
First, Prudential sold its 25 per cent minority stake in the joint venture which houses the Pruhealth and Pruprotect brands, for £155m. FTAdviser exclusively revealed the units will be rebranding under the ‘Vitality’ label that the firm’s products have sported for some time.
Elsewhere, Lloyds confirmed yesterday (14 November) it is exiting stand-alone in-branch protection advice, with sales now confined to mortgage advice processes.
6. ... another may open
For its part, Pru strongly hinted it will relaunch directly into the protection market, with the chief executive stating the transaction will allow it to operate “freely” in the protection market in due course.
And as for Lloyds, FTAdviser revealed in the summer its subsidiary Scottish Widows is set to relaunch into the intermediary channel next year, following a review launched in 2012.
7. Trustees listen to ‘hearsay’.
Pensions ombudsman Tony King told a company that is part of the LV Group to reconsider its decision to refuse to pay a £100,000 lump sum death benefit to a husband, after the family of his former spouse claimed the couple had been set to divorce.
There was some instructive information in the decision, which confirmed trustees have the power of discretion to award the sum between a named beneficiary and “interested parties” as they see fit. The firm was, though, criticised for listening to “unsubstantiated” hearsay and refusing to tell the claimant why he was not receiving the payment.
8. Investors must have ‘caveat emptor’.
The Personal Finance Society urged that the pension reforms demand a degree of “responsibility” on the part of consumers.
Speaking to delegates at a pension panel debate, Keith Richard, PFS chief executive, said that regulated advice should not be promoted to retirees simply on the basis that by doing so they will have greater recourse to claims in the event of poor outcomes.
9. Discontent with FCA’s commercial property stance.
Despite the FCA listening to industry lobbying by stating that commercial property will fall under standard assets for self invested pensions, some Sipp firms are actually calling for a re-think.
The regulator still requires that all assets must be transferrable within 30 days, otherwise it will be deemed non-standard, with many Sipp experts stating that commercial property cannot be transferred within this timeframe.
10. Long-stop won’t be part of EU directive.
Finally, the FCA said it will not be consulting specifically on the long-stop as part of its consultation on the EU alternative dispute resolution directive, despite the fact it said the directive was the potential blocker to introduction. I don’t think this fight will end here.
