Rules being fast-tracked by the City watchdog to come into force from 6 April will force providers to act as a ‘second line of defence’ for consumers seeking to take advantage of pension freedoms, in a move that some may see as a relaxation of advice boundaries.
A ‘Dear CEO’ letter sent to provider bosses and published online today (26 January) by the regulator sets out expectations that firms should ask clients specific questions around their circumstances, give relevant risk warnings, and refer to guidance services or regulated advice.
The move follows an exclusive interview with Steve Webb on FTAdviser last week, in which the pension minister revealed he was pushing the Financial Conduct Authority to loosen restrictions on providers to allow them to question clients without straying into advice.
Mr Webb said: “My question is whether [providers] can go further... as far as saying that they should query whether this is the right product [for the client]. I’d like us to get as close to that as we can.
“I think the FCA is continuing to reflect on all of that and I hope they will have more to say.”
New measures will be introduced on a temporary basis without consultation to ensure they are in place ahead of the pension freedoms coming into force in April. They will apply to all consumers, but are specifically designed to capture those that refuse their Pension Wise guidance offer.
If approved by the board, the new rules will also specifically require that risk warnings to clients are “delivered to customers in very direct and simple language”.
The FCA’s letter states: “... [W]e are conscious of the importance of the decisions people must take in relation to defined contribution pots. In some instances these choices will be irreversible, and people, especially if they do not take the guidance, may not be well equipped to make these decisions.
“Against that firms have told us that they are not clear how far they can, or should, go in respect of helping people who choose not to use Pension Wise to understand the implications of their decisions.”
It adds: “These rules will, by April, provide additional consumer protection by placing a requirement on pension providers for, what has been commonly referred to in debate as a ‘second line of defence’.
“When a customer contacts their pension provider to access their pension, providers will be required to ask the consumer about key aspects of their circumstances that relate to the choice they are making. Providers will be required to give relevant risk warnings in response to answers from the consumer.
“We believe it will be possible for firms to provide the proposed risk warnings without providing regulated advice. The full requirements we will place on firms will be made clear in the published rules.”
According to the FCA, if the consumer decides to ignore the risk warnings they can still proceed with the access request on an ‘execution-only’ basis.