Personal Pension  

Providers cautioned against verbal pensions warnings

Providers cautioned against verbal pensions warnings

Pension providers have been warned against using verbal conservations and questions in their delivery of the ‘second line of defence’, with the chairman of the Association of Member-Directed Pension Schemes claiming this could stray into advice.

Neil MacGillivray, who is also head of the technical support unit at James Hay Partnership, told FTAdviser that written documentation is the preferred method of delivery.

In February, the regulator published its without-consultation intervention to offer additional protection to clients accessing income under new pension freedoms, including requiring providers to offer risk warnings to clients approaching directly to access their fund.

The only exceptions to providing the personalised risk warnings will be if an adviser is acting on a client’s behalf or if warnings have already been provided. Providers will need to ask limited personal questions and offer warnings specific to the method of access.

However, the regulator did not tell providers which was the best way to deliver the warnings, stating they could do it in telephone, in person or in writing.

In documentation seen by FTAdviser, Amps put a number of questions to the Financial Conduct Authority, asking for further detail of what the regulator expects from firms.

In its response to Amps, the FCA said: “We require firms to ensure that the consumer is aware of the risks of the course of action they are seeking to take.

“To do this the firm must identify if a risk factor is present by asking the consumer questions. We expect firms to give risk warnings unless the consumer’s response to the questions establishes that a risk factor is not present. If it is unclear whether a risk factor is present, a firm should give the consumer the appropriate risk warning.

“Firms must go through the question and answer process rather than, for example, give generic risks warnings based on how the consumer is accessing their pension savings.”

In response to the possible implication that this guidance implies a verbal conversation is necessary, Mr MacGillivray said: “I don’t think that’s the case... if you were do it verbally you would be at risk of straying into advice.

“In fact it is to the contrary - we would want to make sure it is all in writing so it is beyond challenge.”

Previously, Royal London and Old Mutual told FTAdviser the best way to deliver the warnings is verbally as consumers are far more likely to understand the complex areas. Typically they advocated a formal discussion involving questions, followed by a summary document.

A straw poll conducted by FTAdviser’s straw poll revealed providers are taking different approaches to delivering the consumer warnings.

Claire Trott, head of technical support at Talbot and Muir, said that the firm took the stance that giving ‘second line of defence’ questions and appropriate risk warnings in writing gives clients the time to think over their options.

“Invariably the warnings will be substantial and just running through them over the phone could mean that someone will switch off thinking that these issues don’t or won’t apply to them.