Personal Pension  

Timing of FCA’s ‘second line of defence’ will be crucial

Timing of FCA’s ‘second line of defence’ will be crucial

Advisers are supportive of the Financial Conduct Authority’s decision to impose a ‘second line of defence’ on consumers accessing the new pension freedoms, however one adviser warns that it may come too late for many retirees.

Yesterday (26 January) a ‘Dear CEO’ letter sent by the FCA to providers set 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 surprise move follows comments made by pensions minister Steve Webb in an exclusive interview with FTAdviser, who said he was putting pressure on the FCA to loosen restrictions on providers to allow them to question clients without straying into advice.

Andrew Pennie, marketing director of retirement advisers Intelligent Pensions, said that while it can only be a good thing that people are made aware of the possible implications and risks, the timing of the ‘second line of defence’ will be crucial.

“Our only reservation is the timing of these messages and warnings. Like the ‘guidance guarantee’, the second line of defence will come too late for many retirees.

“We know wake-up packs don’t work and standardised approaches to DC decumulation are no longer appropriate. Everybody’s retirement will be different and we need fresh thinking and a more personalised approach to decumulation if we are too see the desired overall improvement in retirement outcomes.”

Gary Dunn, partner at True Potential Wealth Management, said that it was a good idea that customers or clients are warned but was concerned that the provider’s role is moving into that of advice.

“They say they [the providers] should ask the questions, but it’s moving into what we do when they give the answers, because it is moving into regulated financial advice. There are lots of warnings in the retirement packs - some people will take notice of them and some won’t.”

He added that the regulator has not fully thought through the consequences of what it is getting the provider to do.

Indeed, life company providers have raised questions themselves on how far they should be expected or allowed to go when querying customers’ retirement decisions, with several telling FTAdviser “urgent clarity” is needed from the regulator on the detail of the proposals.

Mr Dunn said: “I’m not sure it’s been fully investigated - it’s something that I don’t think has been fully thought through.”

Colin Rodger, managing director of Alexander Sloan Financial, added that it “makes sense” to have an added layer of protection for providers as well as consumers to protects them in terms of mis-selling.

However, Mr Rodger noted that the role of the IFA had not really been highlighted. “Post-RDR advice is being priced out for the mass market - [this is the case] in terms of smaller pension pots in particular.”

Laurence Sanderson, independent financial consultant at Sterling and Law, said that people are not thinking about the consequences of taking their money as cash and that the ‘second line of defence’ enforced by the FCA is a good thing.