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Govt to review pension freedoms advice impact


The Government plans to review the advice requirements surrounding pension freedoms amid concerns over the way providers are applying the rules and insistent clients.

Under rules introduced alongside the reforms in April, savers with safeguarded benefits worth £30,000 or more are required to seek advice before transferring their pot. Safeguarded benefits include funded defined benefit rights and plans with guaranteed annuity rates.

In June Money Marketing revealed providers are adopting different stances on when advice is necessary, with only some making advice a requirement for entering income drawdown. There has also been widespread confusion about whether the value of the GAR should be included when calculating a saver’s benefits.

In addition, some providers are forcing savers to take advice when transferring from old to more modern schemes.

A Treasury consultation on pension transfers and early exit charges, published this morning, says the industry and individuals have warned there is “insufficient clarity” about when people need to take advice before transferring.

It says: “In some cases, it is clear that consumers are frustrated by existing legislative and regulatory requirements to seek financial advice in certain circumstances – although it is worth noting that there is no requirement in legislation to follow the advice taken.

“There are also reports of some firms requiring people with benefits worth below £30,000 to take advice, and there may also be cases where firms are requiring advice when not required to do so under pensions legislation, for example if an individual already has flexible benefits and opts for a drawdown product.”

The Treasury also says it is “aware” of concerns around insistent clients, but says FCA rules are clear that: “There is no rule to prevent advisers from transacting business against their advice if the client insists.”

It adds: “The Government appreciates that industry and consumers may still be unclear on specific circumstances when independent financial advice is required and wants to understand whether the process for ensuring individuals understand the need for and importance of independent financial advice is operating as intended.”



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There are 6 comments at the moment, we would love to hear your opinion too.

  1. There is some genuine confusion here which is also mixed up with the FCA rules on when a PTS specialist is required. Providers are all over the place, some requiring advice for anything even below £30k, some only safeguarded benefits and some all of them, and then to top it all half are saying they will only do it if the advice recommends the approach and completely ignores fact that individuals can choose to do what ever they want to- so effectively stopping them- we have loads of examples of this. I think rules are clear although not KISS- but Govt need to help providers out of their quandary by telling them exactly what they should accept or not- otherwise we will never solve this.

  2. And let the floodgates open…. No doubt the 30K advice requirement limit will be increased to circa 100K, and all the consumers will be very happy until that is, their pension fund diminishes in size, and they wish to blame someone, i.e. the adviser.

    Employers will be very happy of course as they will be offloading their DB liabilities, and George Osbourne will be able to add a few more Billlions to his Treasury coffers.

    If it sounds too good to be true, it always is.

    Who was it sang “I predict a riot”?

    The Claims Management Companies must be rubbing their hands with glee!

  3. Quite right, the Government caused the mess so they should sort it out. They only need to amend the legislation to guarantee immunity from future claims and we will all know what we are doing. Somehow I do not think this will happen, as the current regime will be long gone by the time people run out of money.

    It is perhaps naïve to expect consumers to be able to manage their finances so precisely as to drop down dead the day they run out of money, statistics suggest my average client will live to 90 so that has to be a major consideration when giving retirement advice.

  4. The review is merely to ascertain how much extra tax these new freedoms are providing and what impediments stand in the way of the flow.

  5. The Treasury seems to be under the impression that dealing with insistent clients is straightforward – it most certainly is not. It may like to read the FCA ‘Pension reforms and insistent clients’ guidance fact-sheet 035, and articles from compliance professionals (e.g. Ian Cockerill’s article “How to handle insistent clients” in Money Marketing 28th July, explaining the pitfalls and suggesting a ‘staged’ process to follow. Not least, the conflict of ‘recommending’ a product for a client action that you are not recommending and view as inherently unsuitable.

  6. Dealing with insistent clients is simple.

    You produce a report that reaches the correct conclusion and if the client wants to do something against that advice then he needs to state in a letter produced by him that he understands all the risks and disadvantages in following a course of action but wants to go ahead despite advice to the contrary.

    Adviser charges for the advice and charges for any time spent dealing with the transaction – simple.

    If that is too hairy then just don’t deal with insistent clients.

    Providers need to adopt the same approach.

    Advisers and providers perhaps should lobby the FCA and Government to obtain confirmation that there will be no attempt to hold them responsible when a client has received adequate advice and has followed the “insistent” process.

    By inference therefore any future issues involving compensation will fall at the door of the Government.

    My view is that the Government will remove the advice requirement because it wants the income tax stream and isn’t bothered about the long-term consequences one jot.

    Some future Government may have to pick up the pieces but hey so what?

    It’s just part of the current Government’s cynical short-termism.

    Ian Coley

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