Nobody wants another misselling scandal. So clearly, it is paramount that pension freedoms work alongside adequate consumer protection.
The Government and the FCA have arguably done their best to put this in place in the tight timescale they had. We have the requirement that people wanting to transfer from defined benefit to defined contribution schemes will have to take advice where the transfer value is over £30,000. A similar rule is being considered as part of the consultation on tradeable annuities. Plus we have the FCA’s second line of defence rules, requiring providers to give tailored risk warnings to savers, not to mention the creation of the Pension Wise guidance service. So far, so good.
The whole industry, from advisers to providers to the guiders in between, will have to decide how far they want to go in helping people choose how best to access their pension pot, if at all. One provider told Money Marketing this week about a saver who wants to encash their entire pension pot in order to invest in buy-to-let. This is not the kind of thing a pension is supposed to be for. Is there a duty of care here for someone to step in if they believe this is not the right course of action? Or would that simply be standing in the way of a customer’s wishes?
Some retirees are already asking about selling their annuity, even though the plans are not set to come in until next April. The public seems to have got it into its head, albeit wrongly, that all annuities are bad and should be disposed of.
It is all well and good to valiantly attempt to dissuade savers from what may be an ill-advised course of action, that is, spending down your pension pot too quickly. But I am not convinced the safeguards go far enough in dealing with the very real threat of unauthorised firms. Rogue firms and scammers will undoubtedly be all over pension freedoms like a disease. Protecting consumers from themselves is one thing. But the more pressing issue we may need to worry about is protecting them from other people.