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FCA issues warning over ‘complex’ pension freedoms products

The FCA is warning savers face new risks as a result of the development of “complex” and ”difficult to compare” products in the wake of the pension freedoms.

Non-advised customers may also lose out as a result of providers shielding them from the full range of income options, in favour of products they offer themselves, the regulator says.

In the final report of its retirement income market study, the FCA says competition between providers of non-advised drawdown could be weakened by the variety of charges and investments meaning consumers “are likely to find comparison of these products more difficult”.

There is a also a risk savers purchase products with embedded capital and income guarantees that they do not need or understand, the report warns. The FCA also says blended products that combine guarantees and flexible access will be hard to compare.

It adds: “There is also a risk that firms do not invest in, or adequately develop IT systems and operational process that support blended solutions. This could affect customer service and administration.”

In addition, the regulator says providers may use new withdrawal option uncrystallised funds pension lump sum to give customers access to their pensions and warns firms may present UFPLS as a default option without properly explaining alternatives.

Firms developing direct-to-consumer business models need to be “mindful” of the boundaries between information-only, regulated advice and a personal recommendation, the FCA says.

The regulator has found evidence of firms only providing information on options they offer, rather than all the retirement income options available.

It says: “There is a risk that consumers may view their retirement income options as limited to those offered by the firm, and fail to appreciate that there may be other options, not offered by the firm, that could be more suitable for their needs.”

The final report confirms the regulator will be continuing to work on the remedies proposed in an interim report published in December.

These include including a new requirement on providers to show how their annuity rates compare to the open market, to consider how they and the guidance service Pension Wise “frame” different products, slimming down wake-up packs, and the long-term development of a pensions ‘dashboard’ to pull together relevant financial details.

It is expected firms will be required to adopt the annuity quote comparison and new wake-up packs in 2016.


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. May, may, may, may – enough mays to fill a cornfield.

    There is also a risk that customers may give themselves a really nasty papercut with the reams of ‘guidance’ they’ll be handed, then not stick a plaster on it and bleed to death. I propose that we continue to monitor these risks, perhaps with some sort of committee for the oversight of sharp paper. Hey, this forward-looking proactive regulation thing is a doddle.

  2. Does anybody get the impression that the FCA for once are desperately trying to do their job and protect consumers before they are scammed and yet realise that the task is completely beyond their abilities…..

  3. What consumers need to be made acutely aware of is that if they walk into a BMW garage, don’t expect BMW to point you towards the fact an Alfa is more suitable (if indeed that is the case).

    Likewise, when buying Asda Pizza, don’t expect them to check that you don’t want a Tesco Finest one.

    Furthermore, when going to an Apple store, I’m sure you won’t find a Samsung phone.

    We take all this for granted but for some reason consumers (when it comes to financial products) are seemingly facing mass confusion over where the responsiblity of disclosure lies and based on the above this is getting even more muddied.

    This is further compounded by the apparent opaqueness of what constitutes ‘Advice’ – capital A – thereby regulated and not given by a mate down the pub – and furthermore, what that advice is (independent, tied, restricted, ‘whole of market restricted (!)’, over a beer).

    Providing the consumer is fully aware that they are responsible for the decision they make (i.e. in a non-advised situation) and that the probvider is solely responsible in selling their own products (and therefore ‘buyer beware’) then all should be good – what in reality is happening is that consumers want to make their own decisions (but not be responsible for them) and providers are there to provide a product (but are responsible if it’s not appropriate).

    Is there any wonder there is confusion around disclosure?

  4. headbelowthe parapet 26th March 2015 at 10:57 am

    Instead of constantly pontificating maybe the FCA should grow some balls and actually address the issues…

  5. @ Jabba

    I think in the context of this article, its not about the FCA worrying about being “scammed” its more to do with not getting the right advice from regulated firms or Mr & Mrs Miggins, making or taking the wrong options.

    And you wonder if its above their capabilities to stop or address this, sorry I don’t buy that, they know its all covered, FOS will deem it unsuitable, FSCS will compensate the clients, we pick up the bill.

    This all will demonstrate the need for greater regulatory restrictions, which in turn offers them more security, more resources and more money !!

    You made a very important point the other day RE-: FOS and how they will view complaints on this subject, from insistent clients, we are going to need very deep pockets !!

  6. On this one, I have to agree that the growing range of products available and assessing just which one might be suited to who is something of a minefield. FWIW, my view is that in the absence of any providers (so far, to the best of my knowledge) having stepped up to the plate with an Assured Income DrawDown product, the next best thing is investment-linked retirement income products that lock in gains, thereby providing a safety ratchet against falls that would otherwise result in unmanageable losses in income. Simplicity and ease of understanding and comparability should be key elements of such products.

  7. @Julian, also extremely expensive with some sort of counterparty or hedging risk somewhere. Which will be protected by what or whom?

    Guaranteed income that only goes up?
    Capital values that can’t fall?
    Return of capital on death?
    Politicians and regulators demanding “capped” charges?

    Not a chance!

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