Regulation  

Lump sum will be sold on non-advised basis: Providers

The new uncrystallised fund pension lump sum option to access pension funds will still be sold on a non-advised basis, despite the regulator telling the industry to treat it as they would drawdown, because it is not mandatory to get advice when accessing the latter, providers have said.

Yesterday, the Financial Conduct Authority published a consultation paper on the ‘guidance guarantee’. One part of the paper that concerns both intermediaries and insurers was around the regulation of the new uncrystallised fund pension lump sum option.

As FTAdviser reported, until formal rules are drafted, the FCA expects firms to treat uncrystallised lump sums - which have recently been characterised as allowing pensions to be treated like a ‘bank account’ - as they would drawdown, which for many providers will require advice to be taken.

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John Lawson, head of policy at Aviva, pointed out that it is possible to buy drawdown as an unadvised customer and therefore possible to go down the lump sum route as an unadvised customer.

“What this part of the paper says is that advisers should treat UFPLS like they would drawdown from an advice point of view, particularly when considering sustainability of income over lifetime. As far as non-advised customers are concerned, firms should ensure that sufficient information is provided to the customer to allow them to make an informed choice.”

Alastair Black, head of income solutions at Standard Life, stated that the firm already sells drawdown on a non-advised basis, so planned to do the same for UFPLS.

“I do think it’s important that providers help customers understand the risks, but the FCA mentioned in the paper that not all drawdown must be advised.”

Fiona Tait, business development manager at Royal London, explained that the requirement for prospective retirees to seek advice before using the lump sum option is not from the regulator, but incumbent on product providers.

“At Royal London we have decided that pension policy holders looking at that option will receive documentation with strong wording encouraging them to get advice, but will stop short of saying they have to, after all it’s still their money.”

Mr Black also noted that the regulator’s paper brought some clarity to how contract and trust-based defined contribution pension schemes would have to deal with the new drawdown options, calling on The Pensions Regulator to do the same.

Mr Lawson agreed, questioning the assertion that there will be a level playing field between contract and trust-based schemes, with Department for Work and Pensions making mirror rules for occupational schemes to follow.

“This is clearly not the case, as occupational schemes appear to escape paying their fair share of the levy to fund the guidance guarantee. We would call on DWP to make its position clear on levies for occupational schemes and the contribution they should make to the guidance.”

Advisers had long suspected that there might be a trade-off between the guidance guarantee levy they would be required to pay part of and the increased business they might receive off the back of the guidance sessions.