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FCA to introduce ‘second line of defence’ for Budget reforms

The FCA is bringing in new requirements for pension providers without consultation which will amount to a “second line of defence” for the Government’s flagship pension reforms.

The rules will come into effect on 6 April and aim to protect consumers who do not take up the offer of the guidance guarantee service. 

When a customer contacts their pension provider to access their pension, providers must now ask the consumer about key aspects of their circumstances that relate to the choice they are making, such as health and lifestyle choices or marital status.

In a letter to the chief executives of providers today, the FCA says providers will be required to give relevant risk warnings, such as warning of the tax implications of their decisions, in response to answers from the consumer.

The requirements are in addition to an existing obligation on providers to point consumers to the Government’s Pension Wise guidance service.

FCA director of strategy and competition Christopher Woolard says: “The decisions consumers make about what to do with their pension pot are important and in some instances these choices are irreversible. We want to make sure that people have the help they need to make those choices.”

Just Retirement has been calling for a second line of defence for those who opt out of guidance for months.

But as recently as October, the FCA said there will be no “backstop” to prevent people making poor decisions at retirement, arguing that existing rules already protect consumers.

Just Retirement group external affairs and customer insight director Steve Lowe says: “This was a gap that could have wrecked the reforms had it not been plugged.”


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. You really have to feel sorry for the Regulator in this.

    The Government comes out with these daft new proposals (daft for the great majority that is). No prior consultation with those who they have mandated to do their dirty work. And the poor Canaries have to sweep out the Augean Stables.

  2. And the industry picks up the tab.

  3. What makes them think it will do any good?

    As usual the Government thinks that everyone is financially literate and will understand these things. A large majority of people did not read about the fact that they could shop around and getter a better annuity rate elsewhere so do they think people will read the risk warnings etc?

    This is the Government and the FCA covering there own backsides for when the proverbial hits the fan; and the will blame the industry once again by saying that the risk warnings weren’t good enough.

  4. Sean is correct. This is more about deflecting responsibility than it is about acting in the best interests of consumers.

    The FCA were really rattled when Mike Thornton told them that if they didn’t put in extra safeguards, they would be having to explain themselves in five years time and “won’t enjoy it”.

    The blame game has started already, and it is only going to get worse when the scams increase and people make poor decisions.

    From experience, people who are set on a course of action will sign whatever disclaimers and jump through whatever hoops are put in front of them. Asking relevant questions sounds good in theory, but what do you do with the answers when you can’t provide advice?

  5. I too agree with Sean. I said on the day the Govt announce the new proposals that it made them look good but it will make our life extremely difficult. We, as advisers, are the ones who take all the risk when we advise the clients. It would appear the clients take no risk as they can simply say they didn’t understand the risk and the FOS will agree with them and make us pay. We could do with clear guidelines which if we follow will not be challenged or should I say stand up in the event of someone’s risks not paying off.

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