RegulationMar 13 2015

Three more life companies reveal strident risk warnings

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Three more life companies reveal strident risk warnings

Several life companies have revealed plans for strident risk warnings for consumers seeking to access their pension flexibly from April, which they say go above and beyond the proposals set out by the regulator in its ‘second line of defence’ rules.

Zurich told FTAdviser it has joined Old Mutual Wealth in lining up plans to issue extensive risk warnings that go well beyond issues to do with taxation and longevity.

Royal London has similarly revealed plans to highlight a broader range of risks to consumers and has said it plans to issue a retirement freedoms guide. Aviva told FTAdviser it will aslo issue a new guide to consumers on the new access options.

Gareth Evans, head of corporate affairs at Royal London said the insuer will be using “enhanced scripts” for telephone contact with clients and that it has also created a ‘retirement guide’ with case studies showing advantages and drawbacks of every option.

Mr Evans referenced the example highlighted by Old Mutual Wealth earlier this week, when it told FTAdviser it is planning to create extensive factsheets detailing a broad range of potential issues including the ‘future funding’ risk of a drop in annual allowance once funds are acccessed.

In particular, Mr Evans said Royal London is concerned to make consumer aware of the value of guaranteed annuity rates if they are applicable, as these will typically be two to three times higher than those available now and will often be more lucrative than flexible alternatives.

Switching away from guaranteed rates is the one type of move from a fixed benefit that the FCA has said will not require the oversight of a qualified pension transfer specialist under new rules. However, such a move will still require full regulated advice.

Mr Evans said: “We are making sure that people are aware of the issues before taking accumulated pension funds. We are very keen that guaranteed annuity rates will be applied.”

Royal London is also putting a range of tools up on the site for advisers and customers to use. These are currently in development, Mr Evans said.

A spokesperson for Zurich has confirmed the provider will also “go beyond” the rules stipulated by the FCA with the aim of protecting customers.

A spokesman for the firm said it will “warn customers about a range of risks which we believe goes further than those outlined by the FCA”, as well as provide customers “access to online tools and information to help them plan for retirement”.

The spokesperson said: “We recognise the importance of the extra level of consumer protection provided by the second line of defence and are putting measures in place to ensure that we not only fully comply with the FCA’s latest rules but also go beyond them.”

The spokesperson added that Zurich is also conscious that customers will not want too many barriers placed in their way if they wish to exercise their new options from April onwards.

“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. However, this is becoming increasingly challenging with further requirements being placed on providers so close to 6 April.”

Aviva said that it issues retirement wake-up packs five months before the customer’s selected retirement date, and again eight weeks before the customer’s selected retirement date. The packs outline the options available to customers, promotes Pension Wise, and references the risks.

A spokesperson for Aviva said: “We will also include a new guide – reflecting the new freedoms. This is currently being updated to reflect the latest FCA guidance. The updated document will be live by April when the freedoms go live.”

The FCA rules, published without consultation at the end of February, outline a list of key questions and risk areas, ranging from health and tax implications to the implications for means-tested state benefits.

It states the risks and questions set out are “not an exhaustive or prescriptive list” and that firms are expected to “consider what they think is appropriate”.

Jamie Jenkins, head of pensions strategy at Standard Life, said that he believed the FCA is trying to build a process by which nobody makes the wrong decisions, as opposed to looking for a recreation of Pension Wise.

He said that the firm is already doing most of what the FCA has asked but is also building into it online services as well as a scripted telephone service.

A spokesperson for Prudential said that all retirement packs and customer services packs “will be well in line with regulation”.

Both Aegon and Legal and General have not yet finalised their plans.

ruth.gillbe@ft.com