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Questions raised by FCA’s new pension freedom rules

Questions raised by FCA’s new pension freedom rules

The Financial Conduct Authority’s final rules surrounding the pension freedoms have been given a thumbs up but an adviser has asked why is the regulator only acting now on transfer value analysis.

In a 111-page policy paper published today (25 April) the FCA considered extending the ban on payment via commission on non-advised product sales to include annuities.

It also revealed the FCA is considering widespread regulatory investigations into clients’ best interests and the handling of insistent clients.

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On pension transfer value analysis, the FCA was scathing.

“We consider that the current TVA comparisons are unlikely to be helping consumers to be making informed decisions; this is because the included information is so overwhelming that it is doubtful if the document is being read.”.

The paper stated the regulator would introduce rules to prevent providers from sending application forms with wake-up packs and reminders.

Restrictions will also be put in place so firms can send illustrations (that are not requested or required) that fulfil the purpose of comparing all the pension decumulation options offered by the firm, excluding small lump sum payments.

Providers will also be made to make customers aware of the key factors relevant to the option they are seeking information about, and add guidance as to what the relevant factors might be for each option.

Chapters Financial director Keith Churchouse said it was good to see the regulator improving the information supplied to clients.

He said: “The year old freedoms have not been without their problems and I am still sure that ‘Lamborghini man’ will make complaints in years to come. However, it is good to see changes being implemented from the outcomes promptly to help into the future.

“The message of the ability for individuals to shop around for future providers has been somewhat lost in the melee and it is good to see, as a starting point, that providers cannot send application forms with wake up packs.”

As for the pension transfer review, he said making the process robust and clear is vital, so any work to ensure well informed consumer outcomes was worthwhile.

Steven Farrall, partner at Williams Farrall Woodward Financial Planning, took umbrage with the FCA’s statement that transfer value comparisons are unlikely to help consumers make informed decisions, because the information is so overwhelming that “it is doubtful if the document is being read”.

He said this is what advisers have been telling them for years. “Why do we still do it then? To cover our arses from the arbitrary decisions of the capricious bureaucrats that inhabit the FCA and the Fos.”

Steven Cameron, Aegon’s pensions director, said while he understood why the FCA would like providers to tailor ongoing communications, with the freedoms offering such a wide range of choices, it was important to offer providers flexibility.