MPs have attacked the FCA on confusion over the definition of guidance in the wake of the Budget, warning there is a “regulatory nightmare” on the horizon.
Chancellor George Osborne stunned the pensions industry in the Budget last month when he announced people would be able to take their entire pension pot as cash from age 55 from next April.
Alongside the reforms, Osborne said members of defined contribution schemes “will be offered free, impartial, face-to-face advice” at retirement from April 2015.
A consultation document published alongside the Budget confirms the service will provide guidance, not advice.
At a Treasury select committee hearing on the Budget today, FCA director of policy risk and research Chris Woolard was quizzed on the potential confusion for consumers over the difference between guidance and advice.
TSC member and Labour MP for Wolverhampton South East Pat McFadden said: “Where does this leave the consumer in terms of protection when things go wrong if they are being offered guidance and not advice? You do understand that from a consumer’s point of view the difference between the two is pretty confusing, especially when it affects their rights.”
Woolard said: “One of the challenges for us is to make sure it is absolutely crystal clear for people when they are having that guidance conversation, that they understand that it is guidance and they understand what their rights are.”
TSC member and Liberal Democrat MP for Caithness, Sutherland and Easter Ross John Thurso said it is clear from the FCA’s evidence there is “a potential regulatory nightmare between advice with a capital ‘a’ and a small ‘a’, and guidance with a capital ‘g’ and a small ‘g’”.
He said: “There is a risk of the consumer ending up utterly bemused by it all. The FCA will be central to putting that into something that is comprehensible both to consumers and providers. Have you considered the scale of that challenge and how you will meet it?”
Woolard said while full advice is well understood by firms and consumers, as is execution-only, the space in the middle “is often quite murky”.
He said: “We are currently carrying out a piece of work to try and deal with that across the board, and this work around annuities brings it very sharply into focus.”