Personal Pension  

FCA warns on post-Budget business model changes

The Financial Conduct Authority will be monitoring changes to firms’ business models and new product developments arising from the Budget so it can intervene early if it sees any risks to consumers.

The Financial Conduct Authority has today (9 April) published guidance for firms in the interim period before the pension changes kick in next year.

The guidance said that pension providers and intermediaries should be making changes to their processes to ensure customers are not disadvantaged while they are making their retirement income decision, following the radical changes announced in the Budget.

Chancellor George Osborne announced in his Budget speech that the government is set to consult on plans to offer savers access to their entire pension fund without having to pay the current 55 per cent unauthorised tax charges or prove any minimum income. The reforms are set to go live in April 2015.

The FCA’s guidance says advisers must provide suitable advice to meet the needs and circumstances of individual customers making retirement income choices, taking into account the changes in legislation due to the Budget.

“Advisers should also consider, and make it clear in the advice they provide, the implications for customers of the known changes proposed for April 2015,” the FCA said.

An example of good practice, if a customer is within their 30-day cancellation period or has applied for an annuity, is for an adviser to consider whether their recommendation is still suitable and re-contact their customers “as quickly as possible” to explain the changes and “advise appropriately”.

The FCA added that it is aware that many firms have made, or are in the process of making, changes to their practices and processes in light of the Budget announcement. Many firms have extended their cooling off periods, which the FCA said is an example of “good practice”.

The FCA said: “We expect firms to review and revise their existing practices in light of this guidance.”

Furthermore, the government is set to force pension providers to introduce a ‘guidance guarantee’ meaning all individuals with a defined contribution pension will be offered free guidance at the point of retirement.

The government wants individuals approaching retirement to receive “free and impartial face-to-face guidance to help them make the choices that best suit their needs” and is currently consulting on this.

The regulator said it is working with government to develop the “impartial guidance guarantee’ which will be offered to individuals at retirement from April 2015 and “will consult widely about the detail of the standards governing this in the summer”.

However, the Association of British Insurers has questioned this “free” advice pledge. In giving evidence yesterday (8 April) to the Treasury Select Committee on the impact of the Budget, ABI head Otto Thoresen said guidance would only be “free to the consumer in the sense that they won’t be writing out a cheque and it will be paid for...by the industry”.

However, he added: “Actually a contract-based scheme ran by insurers is one thing but a trust based scheme will have to find resources and it will be paid for... by the consumer in the end”.