In January this year, the Financial Conduct Authority was working on fast-tracking rules to come into force from 6 April for pension providers to act as a ‘second line of defence’ for consumers seeking to take advantage of pension freedoms.
At that time, a ‘Dear CEO’ letter sent to provider bosses and published online by the regulator 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.
Earlier this month, pensions minister Ros Altmann called into question how well this second line of defence is working stating providers are to blame for the low take up of Pension Wise.
Now, pension providers have hit back defending their position and promotion of Pension Wise.
Speaking to FTAdviser, Fiona Tait, pensions specialist at Royal London Group, said most of their customers seem to be aware they can take guidance or financial advice.
She said the strongest reason they did not take guidance was they had already decided to take the cash before they contacted Royal London.
She said: “Eighty-five per cent of our customers stated that they were aware they could take advice or guidance and 67 per cent said they had done so before speaking to Royal London.
“However we believe the latter figure may be overstated since the responders may have felt they had to ‘tick this box’ in order to get their cash. There is no hard evidence of this. It is simply a concern we are keeping in mind when speaking to customers.
“I can also confirm that the most common reason (40 per cent) for not taking, or not following guidance if they did take it, was that I ‘already knew what I wanted to do’, followed by I had ‘taken other means of financial advice/have a financial adviser’ (22 per cent).”
John Lawson, head of financial research at Aviva, said the second line of defence is working well as a process.
“There are a few situations where the warnings are inappropriate, such as telling people with a total of £2,000 in their pot that by taking it all they will not have anything left to rely on when they’re older.
“However, the FCA is aware of these issues and has proposed a de-minimis limit of £10,000, below which such warnings could be presented with a lighter approach.
Mr Lawson said that around a third of their customers tell Aviva that they have used Pension Wise – mainly online but face-to-face and via the telephone as well.
“Aviva goes to great lengths to ensure that customers are aware of the existence of Pension Wise and the value of seeking impartial guidance from them.
“We highlight Pension Wise prominently and frequently in our retirement packs as well as including the Pension Wise Letter and Money Advice Service leaflet (all 43 pages of it). Our call scripts, video guides and web pages also feature prominent adverts for Pension Wise.”
Steven Cameron, regulatory strategy director at Aegon, said: “The second line of defence or retirement risk warnings were rushed in by the FCA ahead of the pension freedoms going live.
“It is the right time to reflect on how effective they are proving in helping customers with making important decisions.
“Asking questions and then offering tailored risk warnings works best if delivered by telephone but can involve significant time delays if through written correspondence. Digital delivery offers further opportunities to personalise and improve effectiveness.”
He said Aegon is supportive of Pension Wise and directs all customers considering retirement to seek advice or visit Pension Wise.
A spokesperson for Zurich said the provider fully supports Pension Wise and is committed to working with the government to continue to encourage customers to use it.
He said: “We already include prominent signposts to Pension Wise in our communications with customers who are nearing retirement or at the point of making a decision on their pension savings.
“Pension Wise take up varies significantly by customer transaction, with the lowest engagement among those buying an annuity. As such, it would not be valid to provide a specific figure.”
A spokesperson for Standard Life said of the customers completing their transaction using Standard Life’s digital journey (both online and over the phone), 30 per cent said they have used Pension Wise.