Providers are taking different approaches to delivering the regulator’s ‘second line of defence’ warnings to consumers accessing retirement freedoms, with some going through a verbal process with clients and others insisting on a more formal written questionnaire.
In February, the regulator published its without-consultation intervention to offer additional protection to clients accessing income under new pension freedoms, including requiring providers to offer risk warnings where client’s state they have taken advice or guidance.
The only exceptions to providing the personalised risk warnings will be if an adviser is acting on a clients behalf or if warnings have already been provided. Providers will need to ask limited personal questions and offer warnings specific to the method of access.
However, the regulator did not tell providers which was the best way to deliver the warnings, stating they could do it in telephone, in person or in writing.
Royal London and Old Mutual believe that the best way to deliver the warnings is verbally as consumers are far more likely to understand the complex areas.
A spokesperson for Royal London said: “We deliver the second line of defence through verbal means over the telephone with customers as we believe that is the most effective way to ensure the risk warnings are tailored appropriately.
“We don’t have a fixed questionnaire but all staff on the telephone have been trained to give the second line warning depending on customers proposed actions.
“We would however facilitate written means if this couldn’t be done verbally e.g. hard of hearing but this would only be a very small minority.”
Adrian Walker, retirement planning manager at Old Mutual, agreed, stating that the provider delivers the guidance over the telephone which is then followed up with a written document, which re-iterates the key risks warnings relevant to their chosen withdrawal method and encourages customers to seek advice and/or guidance through PensionWise.
“It is important the second line of defence is not seen as a ‘tick-box’ compliance exercise but as an opportunity to encourage customers to make carefully considered choices about their pensions.
“With that in mind we believe combining a telephone conversation with written information gives customers as much opportunity as possible to digest the second line of defence warnings and consider their options.”
James Hay said it believes that the ‘right’ way to faciliate the warnings is via a written questionnaire as then both parties will have a “documented account of the decision making process, which is in everyone’s best interests”.
Chris Smeaton, marketing director at James Hay, told FTAdviser: “When requesting benefits, the client is required to complete a questionnaire and the questions posed depend on the type of benefit(s) requested.
“This enables us to assess what risks would be relevant to the client’s individual circumstances and issue relevant risk warnings, which the client is required to consider before we can process their request.”
Aviva uses both verbal and written formats. Prudential said that it covers the warnings in verbal conversations and it also flags up the Pension Wise service. Zurich asks customers to complete a written questionnaire or covers the relevant questions verbally.
Alliance Trust Savings told FTAdviser that its clients must complete its ‘accessing pension savings’ form which has a series of risk-based questions that a client must answer before we will process their instruction.
A spokesperson for Standard Life said: “Regardless of whether on phone, online or in writing, we give all customers the same level of knowledge about their circumstances. In some cases, we even phone customers back to discuss higher risk issues.
“If customers are uncertain about what they should do, or if they have safeguarded rights, we require them to seek advice.”
A spokesperson for the Financial Conduct Authority, told FTAdviser: “We haven’t been prescriptive about the format of retirement risk warnings in the rules because we expect firms to develop these as appropriate, based on the way the consumer has decided to access their pension savings, and specific to the personal circumstances outlined by the consumer in response to the firm’s questions.”
The regulator plans to consult on the rules in summer 2015 on whether the rules should be changed or retained as part of a wider consultation on the rules around consumers’ interaction with providers as they approach retirement.
donia.o’loughlin@ft.com
