MPs have attacked the FCA 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” but a Budget consultation document confirmed the service will provide guidance, not advice.
At a Treasury select committee hearing on the Budget this week, FCA director of policy risk and research Chris Woolard was quizzed on the potential confusion between guidance and advice.
Labour MP for Wolverhampton South-east Pat McFadden said: “Where does this leave the consumer in terms of protection when things go wrong? You do understand from a consumer view the difference between guidance and advice is confusing.”
Woolard said: “A challenge for us is to make sure it is absolutely crystal clear for people that the service provides guidance and that they understand what their rights are.”
Treasury select committee member and Liberal Democrat MP 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”.
Woolard said while full regulated advice is well understood by firms and consumers, as is execution-only, the space in the middle “is often quite murky”.
Woolard also revealed that following the Budget the FCA has reduced the demands for data on insurers as part of its annuity review.
In a separate hearing with Apfa director general Chris Hannant, MPs questioned whether there were enough advisers left to deliver the Budget’s guidance service.
MPs grill FCA and Apfa on Budget
Treasury select committee MPs grilled the FCA and Apfa on the risks and costs associated with the recent Budget pension reforms. FCA director of policy risk and research Chris Woolard (above, right) said the FCA’s annuities study has been refocused to reflect the Budget and claimed the regulator could not have acted sooner on annuities as it was only given competition powers last April. MPs were also forthright on the confusion for consumers over the difference between guidance and advice, and challenged Apfa on whether there will be enough advisers to meet rising demands for at-retirement advice. Apfa director general Chris Hannant admitted there was a challenge for advisers to deliver advice more cost effectively.