Advisers report still playing catch-up with pension freedoms

In the years since the pension reforms took effect in April 2015, which allowed many more people to take their entire retirement pot in one go, a raft of measures to bring advice up to speed for the new rules of the retirement sector have been introduced.

But some industry figures expressed scepticism about whether the steps taken go far enough.

Keith Richards, chief executive of the Personal Finance Society, said the freedoms had been good for advisers, driving increases in demand for their services.

But he said: "Against that must be set the potential risks and conflicts of interest, especially those presented by defined benefit (DB) transfers."

Ongoing "challenges", he said, include insistent clients - those who seek to go against the recommended path put forward by their adviser -  and the British Steel Pension Scheme fiasco.

"[With British Steel] ineffective management and administration plunged thousands of members into the [pension transfer] market without consideration of the impact on the member or capacity crunch for the advisers who needed to be consulted for [DB transfer] values above £30,000.

"When situations like this go awry, the whole advice sector can be implicated, which is why extra care and robust good practice must be observed."

Government, The Pensions Regulator and the Financial Conduct Authority should acknowledge the role they and advisers have to play in ensuring pension freedoms don’t go wrong and the "collective responsibility" when it does, he said.

He cited the fact that professional indemnity insurers are beginning to withdraw cover or harden terms for advisers associated with DB transfers, which in turn encourages advisers to withdraw from the market, as an example of how the system has broken down.

To deal with pension freedoms, the FCA carried out the Financial Advice Market Review to help firms develop cheaper advice and guidance services to reach more people. It has also looked at reforming the Financial Services Compensation Scheme levy to help advisers.

Mr Richards said the Financial Advice Market Review was a "positive step forward" but "much remains to be done".

Addressing the FCA's proposals for funding the FSCS, he said: "Although the FCA have made positive proposals, they will not by any means provide a fix for a broken and outdated model."

Among the ideas put forward by the FCA to reduce the size of the bill the bulk of financial advisers pay towards the FSCS, is either requiring firms with professional indemnity insurance exclusions to hold an amount of capital in trust for the benefit of the FSCS or requiring firms to take out a surety bond to cover claims in the event of their failure.

The Financial Advice Market Review, which was published in March 2016, was aimed at developing a market which delivers affordable and accessible financial advice and guidance to everyone, at all stages of their lives.

It included a number of recommendations which have since become reality, including changing the definition of financial advice, the introduction of a pension advice allowance and the creation of the advice unit.

But John Porteous, retail customer solutions director at Old Mutual Wealth, said he has been "disappointed" with the follow through from FAMR given the initial industry engagement with the consultation.

"I would have hoped to have seen more positive change and tangible innovation (of scale) from the industry reaching the consumer by now.

"That said, the implementation of pension freedoms will always give rise to a natural tension between democratising wealth and protecting the customer against misinformed or poorly judged decisions. Clearly, this is an ongoing challenge for the regulator.

"It’s clear to say that FAMR is still a work in progress and with the demands of Mifid II and the likely disruption of Brexit the opportunity to make a positive difference in the short to median term, may experience some headwinds."

Kate Smith, head of pensions at Aegon, said the success of FAMR will be measured by whether or not it has closed the gap between those who need advice and those who can afford it.

"By this measure there is still some way to go before it can be deemed a success, or whether there is more work for the regulator to do."

damian.fantato@ft.com