FCA: ‘Second line of defence’ won’t apply to pension pots below £10k

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Pension pots below £10,000 will not be subject to the FCA’s new ‘second line of defence’ rules.

In its consultation on pension freedom rule changes, published today, the regulator has announced a relaxing of the requirement for providers to give customers risk warnings when they access their pensions.

Previously providers had to deliver the warnings to every customer but now this will only apply to pots above £10,000 or if policies include safeguarded benefits.

In addition, the wide ranging consultation on changes to pensions regulation also proposes a commission cap on non-advised annuity sales.

The regulator also signaled a change in its definition of ‘certified high net worth investors’ and ‘restricted investors’.

Lump sum pension withdrawals, that are not being used to provide retirement income, will be excluded from high net worth criteria.

Likewise, money withdrawn from pensions and not earmarked for retirement income is excluded in high net worth and restricted investor criteria.

The margin earned by Sipp firms on customers’ cash accounts has also come under scrutiny. The FCA says some firms are ignoring requirements to express this interest as a charge.

In September, Money Marketing revealed how some firms relying on this margin to stay in business.

It says: “It has become apparent, through out superrvisory activity with firms, that some firms are not including the retained interest charge in Sipp projections and charges information as we had intended because of an uncertainty around how our rules should apply.”

The regulator says it will amend rules to clarify that margins must be included in projections, effect of charges tables and RIY measures.

Firms have six months to make the changes.

Conduct of business rules around income drawdown could also be extended to include new withdrawal option uncrystallised funds pension lump sums.

The regulator says “many of the same considerations apply” when advising on Ufpls and proposes introducing an equivalent suitability report.

The FCA will add guidance for debt management firms who may be pressurising customers into using pension savings to pay down debt.

It says: “While in some circumstances it may be in a customer’s interest to do this, the effect of our existing rules is that creditors must not pressurise customers to repay a debt in a single or small number of repayments, or in unreasonably large amounts, if doing so would adversely affect their financial circumstances.”

New methods of calculating transfer value analysis for pension transfers are also being considered.

Read the full consultation paper here.