Pension Freedom  

Regulator rules out limited advice for small pension pots

Regulator rules out limited advice for small pension pots

The FCA has ruled out changing rules for financial advisers that would allow them to offer a limited at-retirement advice service affordable to those with smaller pension pots.

Last week in a 122-page paper the Financial Conduct Authority revealed consumers who access their small pension pots early without taking advice typically fail to achieve the best possible retirement income available to them.

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Before the pension freedoms, the FCA's Retirement Outcomes Review interim report stated, 5 per cent of drawdown was bought without advice. This is compared to 30 per cent now. 

As drawdown is complex the FCA stated these consumers may need more support and protection.

More than half (52 per cent) of fully withdrawn pots by non-advised savers were not spent but moved into other less tax efficient savings or investments. 

In an exclusive interview with FTAdviser, Mary Starks, director of competition at the FCA, was asked, given what the Retirement Outcomes Review uncovered, why wasn’t the regulator looking to make changes to the rules so advisers could help savers with smaller pension pots figure out what they should do post pension freedoms.

At the Association of British Insurers Long Term Savings Conference earlier this month Martin Rumsey, director of KPMG, said the current regulatory regime did not allow advisers or providers to assist the bulk of those trying to make sense of pension freedoms.

According to Mr Rumsey this is because a lot of the language of the Financial Conduct Authority was around achieving the “best outcome” for at-retirement savers without acknowledging the cost of achieving that is too great for the average person.

He said the FCA needed to come up with a regulatory regime that allowed advisers to assist savers with getting a “better outcome” than they would do if they received no assistance at all.

When asked would the regulator consider changing regulatory requirements to allow advisers to deliver limited, cheaper advice to savers with smaller pots, Ms Starks said: “This report very deliberately looked at the non-advised market because we were kicking it off at the same time as the Financial Advice Market Review.

“For the pot sizes we have been looking at in this report, full-on traditional face-to-face financial advice is simply too expensive and not worth doing if you have a pot of only £10,000.

“We will definitely look at low-cost mass market solutions to emerge and we are engaged in an active dialogue via the Advice Unit and sandbox around what those options might look like and how those options might be made to work both from a consumers point of view, a firm’s perspective and a regulatory perspective.”

Back in April the Financial Conduct Authority announced it would expand the scope of its advice unit to cover a wider range of services.