AJ Bell chief executive Andy Bell has warned the regulator that investment pathways will confuse savers into thinking they have been advised and in turn hand claims to ambulance-chasing lawyers.
In a letter to Nikhil Rathi, the newly-appointed chief executive of the Financial Conduct Authority (FCA), Mr Bell warned the investment pathways proposals were “fundamentally flawed” and would pave the way for a raft of claims.
Under the proposed rules, non-advised savers who enter drawdown or transfer funds to a new drawdown account will need to be offered ready-made investment pathways based on their answers to basic questions about how they plan to spend their retirement pot.
This will also be the case for advised clients if they are looking to change their investment decisions more than 12 months after the transaction they were advised on.
Mr Bell warned the pathways were a “mandate for providers to sell expensive in-house funds”.
He said providers could be particularly vulnerable to complaints if investment pathways suffered the losses that were seen at the start of the Covid-19 pandemic, as savers could feel as though they had been pushed into making the investments.
Mr Bell said: “Investment pathways risk funnelling people into investments that do not suit their needs or retirement priorities and are a mandate for pension providers to line their pockets by peddling their own in-house funds with little or no control on fund charges.
“If investment pathways had been in place before the Covid-19 markets dip hit in March and April, providers would have faced a barrage of complaints from understandably angry customers who had lost money after it was suggested they put all their money in a single investment that subsequently fell by 10-15 per cent.
“The already uncertain lines between advice and guidance will become even more blurred and these customers will feel and claim they have been advised, when they haven’t.
“In fact, one of the main beneficiaries of these reforms will be ambulance-chasing lawyers, who will undoubtedly be salivating in anticipation of this opportunity being spoon fed to them by the FCA.”
Mr Bell said the rules amounted to shepherding non-advised drawdown customers into a single investment solution based on the answer to one ambiguous multiple-choice question.
He added: “The regulator appears to be conducting a huge experiment with thousands of drawdown investors without ever properly testing whether it will actually work in the way it intends.”
Mr Bell called on the regulator to take another look at the proposals to see whether they are fit for purpose.
“Mr Rathi has the opportunity to refocus the FCA’s energies on solving the very real problems identified in the FCA’s Retirement Outcomes Review with targeted and proportionate measures in favour of the wrecking ball called investment pathways.”
Investment pathways were originally due to be introduced in August 2020 but as a result of Covid-19 the implementation date has been pushed back to February 2021.
Scheme support
Meanwhile, the Pensions and Lifetime Savings Association (PLSA) has called for a new regulatory framework to allow pension schemes to better support savers when they are choosing how to access their pension.
In particular, the PLSA said the framework should introduce a statutory requirement for schemes to help manage some of the risks savers are facing while also looking to provide support, especially to savers who do not engage with their pensions.
Schemes should also have an input in any future product development in order to manage risks for savers as more people increasingly rely on defined contribution pots for retirement, it said.
The framework should also set out minimum standards for schemes to follow when communicating and engaging with members.
Emma Douglas, chairwoman of the PLSA policy board, said: “The pension freedoms radically revised the journey for savers when they reached retirement, bringing new opportunities, challenges and risks to savers and pension schemes.
“The decumulation framework we are recommending today responds to the evolution of the pension system.
“It will provide vital support to savers and help bridge the gap between the inertia which makes automatic enrolment such a success, and the range of choices (which can be confusing) savers face when electing how to draw their pension at retirement.”
amy.austin@ft.com
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