FTAdviser trawled through the 139-page consultation paper to bring you the nine key takeaways from the Financial Conduct Authority’s pension freedoms consultation.
1) FCA asks advisers for ‘insistent client’ views
Advisers and providers’ refusal to transfer ‘insistent client’ business is perceived as an “impediment” to defined benefit pension scheme members who want to transfer and take advantage of the pension freedoms.
Anyone with a DB pot of over £30,000 needs to take regulated financial advice, however this is costly and it is likely that the adviser will not recommend a transfer as safeguarded benefits will be lost. FTAdviser revealed earlier this year that advisers are being asked to sign letters stating consumers have received advice, however no advice has been given.
The FCA found that many providers will not accept insistent client pension transfer business while some will not accept any DC transfer business at all. The FCA wants to hear provider and adviser views on how regulation can be amended to allow such transactions more easily, while still providing a satisfactory level of consumer protection.
2) Four “priority risks”
The regulator identified four “priority risks” for pensions and retirement income, including sales and advice, value for money, firms’ management of legacy business and the potential risk of an increase in scams and fraud.
Additional medium to long-term risks include lack of consumer engagement in pension savings, lack of consumer confidence in pensions more generally and the need to develop appropriate consumer protection in a secondary market for annuities, given the risks posed to the individual’s retirement income.
3) Annuity applications prohibited
The Association of British Insurers’ code prevents its members from sending annuity application forms with wake-up packs and reminders, unless specifically requested by the customer, with the FCA proposing to incorporate this into its own rules.
The regulator said that sending such application forms risks “undermining” efforts to encourage consumers to shop around and will create a “more level playing field in the at retirement market”.
4) Illustrations will be restricted
Without corresponding controls around illustrations for any retirement product, the regulator believes that firms could, intentionally or unintentionally, direct customers to a specific route.
Therefore illustrations should only be for the purpose of comparing of comparing all the options offered by the firm. Where a provider sends an illustration that has not been requested by the consumer, it must include an illustration for each pension decumulation product offered and multiple illustrations that are representative of the range of options.
5) When will you run out of money?
The regulator is also consulting on guidance that provides a number of suggestions for ways in which firms can provide information to customers on sustainability of income so that consumers have a better idea of how long their funds are likely to last.
Providers should consider what sustainability risks their products pose and develop appropriate measures to keep their customers informed, along with what additional information should be supplied to customers at times where “significant market movements” have materially affected funds.