The Financial Conduct Authority needs to refine the proposed rules on investment pathways, otherwise providers run the risk of being seen as giving advice, Royal London as warned.
As part of its latest work on retirement the FCA proposed pension providers offer their non-advised customers a choice of investment pathways to meet their retirement objectives.
But in its response to the regulator’s consultation on this topic, which closed on April 5, the mutual insurer stated that it doesn’t believe "providers can offer investment pathways in the way intended without giving the consumer a personal recommendation".
A Royal London spokesperson said: "Providers need a safe harbour in offering investment pathways [to ensure] they’re not giving investment advice to consumers."
The FCA proposed four pathways after it found many consumers were solely focused on taking tax-free cash from their pensions and were "insufficiently engaged" with deciding how to invest funds that moved into drawdown.
The pathways include an option for consumers who have no plans to touch their money in the next five years and for those who plan to use their money to set up a guaranteed income within the next five years.
The regulator also proposed an option for consumers who plan to start taking money as a long-term income within the next five years and those who plan to take out all their money within the next five years.
The regulator stated providers would need to treat consumers as non-advised if they make an investment decision more than 12 months after the transaction they had been advised on.
This will also be the case within the 12-month period if the client doesn’t confirm that their personal or financial circumstances have remained unchanged since receiving advice.
But Royal London has warned the watchdog that its definition of non-advised client in this area "needs to be tightened".
"Otherwise an adviser could potentially be held responsible for decisions made by the consumer on the subsequent transaction if the consumer says their circumstances are unchanged for it," a spokesperson for the mutual stressed.
Aegon, which has previously warned that the proposed rules could see advised clients be classified as non-advised, also responded to the consultation.
Steven Cameron, pensions director at the company, said the "FCA’s proposals err too much on the side of providers having to prove consumers are ‘advised’".
He noted that consumers "will struggle to identify relevant changes" in personal or financial circumstances, which means "this approach risks providers excessively interfering with adviser/ client relationships".
The proposed rules for considering if a client is advised or not also mean providers may have to frequently question customers, Mr Cameron noted.
He said: "We believe this degree of questioning is excessive and may be seen as unduly interfering with the customer’s relationship with their adviser.
"It is also likely to slow down the time taken to switch investments, taking away one of the benefits of online propositions."