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Labour peers in last ditch push for guidance backstop

Labour peers are to propose last minute amendments to the Pension Schemes Bill that would introduce extra regulatory protection for consumers when they make decisions about how to use their pension savings.

The changes are due to be tabled on Monday during the House of Lords committee stage as the Bill nears the end of its route through parliament.

Four Labour Lords back the amendment including Baroness Drake, who holds positions at The Pensions Advisory Service, the National Association of Pension Funds and influential think-tank the Pensions Policy Institute.

Firms have been calling for a “second line of defence” to catch people who do or do not take up the Government-backed free guidance service to ensure they make an active choice rather than defaulting into buying a product from their existing provider.

In September 2014, Money Marketing revealed a pilot of the guidance service undertaken with L&G had a take up of only 2.5 per cent, fuelling fears many retirees would make retirement income decisions without using the service or speaking to a financial adviser.

But the FCA has so far resisted calls to introduce extra safeguards, saying existing regulations already “bite”.

The Lords amendment reads: “The FCA must secure an appropriate degree of protection for consumers whether they have used pensions guidance or otherwise throughout the decision-making and purchasing process, including safeguards to actively inform consumers of key risks and benefits.”

Just Retirement director Stephen Lowe says: “This important amendment should be supported by Government. It seeks to ensure regulators put in place requirements on product providers and pension schemes to put in place protections, particularly for those people who do not take up the offer of the guidance guarantee.

“The current conduct requirements on providers and schemes allows them to invoke a passive rather than an active approach to protecting people – particularly those who are making many obvious inertia-led poor decisions.”


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. But according to everyone the public can be trusted with their pensions so why do they need further protection?

  2. I think its also a shame the opportunity has been missed to include within the guidance guarantee, strong warnings about falling for inappropriate unregulated investment proposals from unauthorised promoters with the monies released by the new pension freedoms. This would appear to me to be an obvious potential scandal in the making.

  3. The proposed amendments are well-intentioned, but appear to be incompatible with the current regulatory structure and the limitations of “guidance”. For what it’s worth, the actual wording of the amendments is so ambiguous as to be essentially meaningless.

    It’s not fashionable to have sympathy with the regulator, but they are caught between a rock and a hard place. The government have sold the reforms on the basis that people can be trusted with their money; rather than oppose the reforms themselves (which would be political suicide), Labour’s line of attack is the level of protection for customers and the risk of “mis-selling”.

    Like Sean alludes to in the post above, freedom of choice goes hand in hand with personal responsibility. Martin also makes a very valid point that the biggest risks are on the unregulated side, while the main focus is on the sales and conduct of regulated firms.

  4. Good points made above.

    What it looks like they are trying to do is create responsibility so that someone else pays if it goes wrong. This may be the last straw that breaks the providers. It would be easier to not provide an annuity at all to a retiree than take the risk (“anything you do or say now can be judged insufficient at some indetreminate future date”) of having to pay compensation later.

    On the positive side clients would be fordced to shop around… and the vast number of low value clients will be passed straight into the hands of the execution only services. The fact is the only way to get a good outcome, including protection from bad advice, is to get regulated advice. But then complex regulation and the conduct of the regulator has priced that option out of the market. You reap what you sow.

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