FTAdviser examines five proposals from the Work and Pensions select committee’s report on Pension Freedom and Guidance, which was published today (19 October).
The Work and Pensions select committee has demanded providers are mystery shopped to make sure they are pushing savers towards Pension Wise, told the FCA to tighten reporting requirements on pension scams and demanded a pension dashboard.
The FCA, as part of the Financial Advice Market Review, were told by the MPs to clarify the distinction between guidance and advice, the definitions of safeguarded benefits and protections in providing advice to insistent clients.
Here are the key points from the select committee’s 39-page report:
1) Time to be clearer about insistent clients
The report stated that examining the affordable advice gap rightly sits at the top of the priorities of the Financial Advice Market Review.
“In the pension freedom market, closing the gap should be the first policy objective of the government and regulators.”
The select committee recommended the government and the FCA, as part of the FAMR, clarify the distinction between guidance and advice, the definitions of safeguarded benefits and protections in providing advice to insistent clients.
The committee’s call for clarity came after last month Rory Percival, technical specialist for the Financial Conduct Authority, hit back at a lawyer and former chairman of the National Association of Pension Funds, who branded the regulator ‘wishy washy’ on insistent clients.
Robin Ellison, head of strategic development for pensions at Pinsent Masons, told a packed room of advisers at an FTAdviser event in Edinburgh that the FCA had failed to deliver a “proper response” on insistent clients.
However, Mr Percival said argued that the regulator had published a factsheet on insistent clients, stating this three-page document clearly spelt out the three key steps advisers need to take with those who do not follow advice.
Once again, he reiterated the three steps.
2) Concerns about lack of information about Pension Wise
The DWP select committee raised concerns about the near complete lack of data about Pension Wise and the absence of a research programme tracking consumer outcomes, recommending these omissions are addressed with urgency.
The report stated statistics on Pension Wise have so far only been published on an ad hoc basis, in response to parliamentary questions and in evidence to its inquiry.
However, despite this lack of information, the report noted that more than 90 per cent of people who have used Pension Wise have been satisfied with the service.
3) Government should redouble publicity efforts around scams
It was recommended the government urgently redouble its publicity efforts around pension scams, and it further recommends the FCA tightens its scam awareness and reporting requirements for regulated firms.
“Scams are a tragedy for individual households and undermine trust in the law-abiding and responsible majority in the retirement finance sector.
“Scammers must be stopped. We will monitor action on pension scamming closely over the course of the parliament.”
The MPs comments came after last week Phoenix, the UK’s largest specialist consolidator of closed life funds, identified 1,650 suspicious companies or schemes which it believes are involved in scams.
It also claimed to have prevented 1,200 people from losing their money and warned that the focus of scammers has shifted towards self-invested pension schemes and ‘boiler room’ style investments.
Since the reforms, Phoenix said it has prevented 125 cases totalling £1.8m in potential customer losses.
4) Better Pension Wise signposts and Dashboard needed
The report recommended the Financial Conduct Authority strengthens its rules and guidance for pension providers regarding Pension Wise signposting and risk warnings, and assure compliance through mystery shopping exercises.
“We further recommend that the number and proportion of customers that contact Pension Wise having been signposted there by each provider should be tracked and published in regular statistics.
“Pension Wise guidance is currently too narrow for too many consumers. Decisions about retirement income products are not best made in isolation from information on property wealth, benefit entitlements, tax implications, care costs or debts.
It added that a pensions dashboard is long overdue and that pension freedom merely makes it more urgent.
“Enabling people to view all of their pensions in one place will leave customers better-placed to make good decisions about their retirement savings. It will also encourage people to engage with their finances while accumulating a pension. There is clearly broad appetite for this reform.”
5) Sort out pension default strategies
Default decumulation options would offer protection to those unable or unwilling to engage with their pension choices, the select committee concluded.
The MPs stated default options would retain for others the opportunity to exercise more active choice.
“However, their introduction would amount to a philosophical departure from the pension freedom policy. It would risk greater disengagement with saving and enable firms to exploit incumbency further to the potential detriment of consumers.
“Legislation for default options should only be introduced if long-term monitoring of the consumer outcomes from pension freedom indicates that it is necessary.”
The MPs comments on default strategies come after last week the FCA confirmed it had been approached by providers with concerns about their investment approaches.
Alex Roy, manager for life and pensions at the FCA, said the regulator received “lots” of calls from providers about lifestyling options after savers were granted greater access to retirement savings pots in April.
The DWP select committee report added that a watching brief on pension freedom is imperative and it intends to return to this issue over the course of the parliament.
“Whether improvements in the quality and take-up of guidance and advice can be achieved will be central to the success of the policy. It is right that people should be able to choose what to do with their retirement savings.
“However, freedom to choose is not enough; people must have freedom to make informed choices.”
ruth.gillbe@ft.com
