Trust-based and contract-based pension schemes lack uniformity when issuing the ‘second line of defence’ warnings to clients, Aviva’s John Lawson said as he called for the same risk-warnings to be delivered regardless of what type of scheme a consumer is in.
Speaking to FTAdviser, the firm’s head of policy for retirement solutions pointed out that contract-schemes and trust-based schemes have two different forms of regulation. Whilst the former are answerable to Financial Conduct Authority regulation, defined-contribution trust-based schemes fall under the Pensions Regulator.
In February, the FCA 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 clients 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.
Mr Lawson said: “There’s a code of conduct that [trust-based schemes] can, if they want, comply with, so if you are in an occupational scheme, say one of these big master trusts such as Nest for example, theoretically Nest can ignore its members and say ‘well I’m not going to give you second line of defence’.”
“It shouldn’t really matter whether you’ve ended up in Nest, The People’s Pension, Now: Pensions or an Aviva contract-based scheme, you should get the same risk warnings.”
He argued that it is neither right or fair that there is this imbalance, calling for personalised risk warnings to be put in place across the board, with examples shared at a high level between both large and small businesses.
A spokesperson for Royal London agreed that there should be a greater synonymity amongst the regulation. “We believe that this should be consistent; the risks faced are the same and therefore they should be provided with the same level of consumer protection.”
A TPR spokesperson told FTAdviser that its guidance is specifically tailored to the duties and legal circumstances of pension scheme trustees and is designed to be easily and quickly adopted by pension schemes.
He said: “In brief, trustees look after scheme assets on behalf of all of the members, which includes exercising their powers for the benefit of those members as a whole.
“They have legal responsibilities including to provide members with sufficient information to make informed decisions about their retirement options. This does not extend to asking members about their personal finances.”
Mr Lawson also added that some smaller providers were struggling to implement the second line of defence, particularly those operating trust-based schemes.
“At best, what you’ll be getting is a sheet that, regardless of what you as an individual do, you know if you are going to take cash, the risk warnings will not be personalised to your situation.”
He added that although big mastertrusts would comply, smaller schemes may not even bother because it was too much effort.
FTAdviser previously revealed that 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.
However, Neil MacGillivray, head of the technical support unit at James Hay Partnership and chairman of the Association of Member-Directed Pension Schemes, warned against using verbal conversations and questions in their delivery of the warnings.
Mr MacGillivray told FTAdviser that written documentation is the preferred method of delivery.
ruth.gillbe@ft.com
