9 key takeways from the pension freedoms consultation

6) Suitability reports needed for UFPLS

The FCA rules require a suitability report to be produced whenever a personal recommendation is made in relation to an investment product, including the election of income withdrawals. It also has guidance on the relevant circumstances to be considered when making personal recommendations on income withdrawals and the risks to be included in the report.

When providing advice and preparing suitability reports on ‘uncrystallised fund pension lump sum’, the same considerations would apply as when advising on income withdrawals, the paper said.

Therefore the FCA proposes that advisers produce an “equivalent suitability report” when recommending UFPLS payments.

7) Consultation on axing risk warnings for small pots

The regulator proposed to remove the requirement for a firm to go through the ‘question and answer’ process - step two of the ‘second line of defence’ risk warnings - when a consumer has a pension pot of £10,000 or less and there are no safeguarded benefits.

It does not think step two is beneficial for those with smaller pension pots and that the cost to firms for these clients can be “disproportionate”. This could also “significantly reduce” the compliance burden for firms, while improving the customer experience, the regulator added.

The FCA is consulting on what the ‘minimum level’ should be, but has proposed £10,000 as firms will already have systems and processes set up to recognise this level, so this would be the least costly option.

8) Non-advised services carry bias risk

Not only do non-advised services charge high amounts of commission, but they also carry a risk of bias, with third parties only prepared to offer those annuities that pay the highest amounts of commission.

The regulator proposed three options to deal with the issue, including improved disclosure so customers are far more aware of what commission they are paying, that commission should be restricted on non-advised annuity sales and improved competition, as the issue may reflect an underlying failure of competition.

9) Tackling lifestyle investment strategies

Finally, the regulator wants to know what you think it should do to make firms aware of their responsibilities in relation to lifestyling investment strategies.

It highlighted that in the new environment, these profiles will need to reflect a greater number of options and, hence, increased uncertainty around when people will retire and how they will access their savings.