One of the many consultations published by the FCA over the last few weeks has been the 139 page-long CP15/30, entitled “Pension reforms – proposed changes to our rules and guidance”. In it, the regulator outlines how it intends to amend the Handbook to ensure rules keep up with the way the market is responding to what it calls “the most profound change in a generation”.
It is, of course, important to ensure consumers are protected from scams and supported to take the decisions that will lead to a stable and secure income in retirement. This should include clear signposting to financial advice, where appropriate. However, it is inconsistent with the philosophy of greater individual autonomy that underlies pension freedoms to place so many caveats and potential restrictions on consumers choosing to take advantage of the reforms.
The assumption underlying some of the later questions in CP15/30 on the decision whether or not to transfer from a pension with safeguarded benefits is that, in the vast majority of cases, doing so will not be in the client’s “best interests”. Yet it is arguable pension freedoms changed the definition of “best interests” for many people overnight.
It seems inappropriate to second-guess consumers that have been given greater choice to determine what is best for them. The FCA should make clear there is no assumption in its or the Government’s mind as to whether or not a transfer from a scheme with safeguarded benefits is a good or bad thing. For those people with a pot of £30,000 or above who are required to take advice, the advice given should simply be suitable to the individual’s needs, objectives and circumstances.
Another key issue in the paper that advisers should be aware of is transacting insistent client business. Although the FCA has published a factsheet on the topic, CP15/30 notes quite rightly that “advisers are still uneasy about dealing with insistent clients”, particularly in relation to the availability of professional indemnity insurance and the uncertainty surrounding how the Financial Ombudsman Service will react further down the track.
Members have told me of a number of ways in which they are currently handling this delicate area. These include getting not only the client but also the client’s beneficiary to sign the appropriate papers and requiring an email to be sent from the client confirming “in their own words” (in line with FCA recommended best practice) that they understand the implications of going against the advice given.
However, there are other advisers who have told me they will not get involved in pension transfers under the new freedoms without clarity from the FCA and FOS about where liability assigns. This is something that may well only become clear to all once the first complaints to the ombudsman appear.
In the issues it examines, CP15/30 seems to accurately reflect the majority of those concerns members have brought to us regarding the implications of changes to the pension landscape both for their businesses and the retirement income market. It is incumbent on the industry now to take this opportunity to feed in their views and ensure FCA guidance keeps pace with the rapid rate of policy change.
Caroline Escott is senior policy adviser at Apfa