Life company providers have raised questions on how far they should be expected or allowed to go when querying customers’ retirement decisions, with several telling FTAdviser “urgent clarity” is needed from the regulator on the detail of the proposals.
Yesterday (26 January), the Financial Conduct Authority gave the green light for providers to have act as a ‘second line of defence’ for consumers seeking to take advantage of pension freedoms, in a move that some may see as a relaxation of advice boundaries.
In a move broadly welcomed by the industry and in response to widespread demands for further protection for clients in particular that eschew guidance, the watchdog said it would bring in new rules ahead of any consultation allowing providers to push back on pension access requests.
A ‘Dear CEO’ letter sent to provider bosses sets out expectations that firms should ask clients specific questions around their circumstances, give relevant risk warnings, and refer to guidance services or regulated advice.
If approved by the board, the new rules will also specifically require that risk warnings to clients are “delivered to customers in very direct and simple language”.
The surprise move echoes comments made by pensions minister Steve Webb in an exclusive interview with FTAdviser, who said he was putting pressure on the FCA to loosen restrictions on providers to allow them to question clients without straying into advice.
However, providers have questioned how far they can go, without straying into the regulated advice remit.
Speaking to FTAdviser, Steven Cameron, Aegon’s regulatory strategy director, said he agrees with the FCA that individuals will need extra support, admitting it is hard to tell how they will behave in practice and providers have to be on alert for consumers doing things they might regret.
However, he added: “Our concern is that a second line of defence could become disproportionate and undermine consumer confidence in the reforms - we have to get the balance right.”
He also asked the regulator for “urgent clarity” on how wide the questioning of consumers should go, suggesting that they must not be inappropriately challenging.
“Providers are already well advanced on preparing materials ahead of April, so we need guidance on this sooner rather than later. We need clarity on the differentiation between verbal, online and written communications, as well as whether these additional questions are to come before or after the Pensions Wise.
“There’s not much time to consider these issues, so I hope the FCA sees things being done on a ‘best endeavour’ basis in the next few months.”
Mr Cameron also criticised “loose talk” about second lines of defence, something initially raised by Labour peers to help protect people from scams and pensions liberation.
Rod McKie, head of retirement propositions at Zurich, believes the FCA’s move to define the minimum requirements for providers to minimise customers risk is helpful, however he warned that rules must as drafted so as not to undermine the new freedoms.
Mr McKie said: “As result, we are keen to ensure there is a balance between helping customers to achieve a good outcome and delivering a positive customer experience that is not overly demanding.”
Old Mutual Wealth warned that the requirements set out by the FCA should not be seen as a substitute for advice.
Adrian Walker, Old Mutual’s retirement planning expert, added: “Simply highlighting the fact there could be tax consequences when taking pensions as cash should be seen as the bare minimum requirement.”
John Perks, managing director of LV Retirement Solutions, agreed: “We have long been advocates of ‘at retirement’ advice and have been calling for a ban on pension providers marketing to customers before they have obtained advice.
“To improve customer outcomes, we believe that the industry must work together to demonstrate the value of the guidance service and the benefits of regulated advice.”
peter.walker@ft.com
