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Wheatley: ‘Pension reforms are Y2K moment for industry’

The Budget pension reforms coming into force in April are a “Y2K moment” for the industry, says FCA chief executive Martin Wheatley.

Speaking at the National Association of Pension Funds investment conference in Edinburgh today, Wheatley said one of the most biggest risks of the pension freedoms is fraud.

He said: “Scams and fraud, we know, tend to proliferate at the moment of maximum uncertainty.

“So, for the pension industry, the upcoming switch in regime looks something akin to a Y2K moment. Particularly given that there’ll be a significant number of people who’ve held off crystallising their pensions over the last year in order to take advantage of the new policy landscape.

“It is an imperative that this risk is properly managed and mitigated.”

Wheatley says major risks include consumers being tempted to invest in scams offering high returns in the low return environment, and firms targeting consumers with pension liberation schemes.

He says the reforms represent “unchartered territory” for the pension industry, regulators, politicians and those approaching retirement.

He says: “What matters now is simply: delivery, delivery, delivery. How effectively are political principles applied in practice? How well are consumers supported under the new regime as we move things forward?”

Wheatley says it will not be possible to prevent all consumers from making “sub-optimal decisions”.

He says: “Some savers, come 55, will invariably head to Las Vegas, buy fast cars or otherwise calculate how to run down their pension pots in days and months, rather than years.

“Optimists will be inclined to believe that these numbers will be fractional. Pessimists that they may be more significant.

“But the reality is that this is all simply part of the process that flows from the benefit of freedom.”

He argues that consumers must accept a degree of responsibility for their decisions.

He says: “It is perfectly reasonable for firms to question where accountability eventually lies if you end up in a situation where X percentage of consumers refuse to listen to any guidance or risk warnings given.

“Who, ultimately, is to blame if – 10 to 15 years on from now – those people regret whatever choice they’ve made, or complain they weren’t properly guided?

“And actually at that point, it becomes difficult to sensibly argue that individual consumers shouldn’t accept responsibility. Nor, I think, would wider society expect otherwise.”

Wheatley says under the new system, there will be a “division of responsibility” between consumers, firms and policy makers that is “a long way from today’s annuity-based system”.


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There are 18 comments at the moment, we would love to hear your opinion too.

  1. I totally agree with MW here !

    But what a wasted opportunity not to mention “regulated” advice & investments and its protection !

  2. Bit of chicken coming home to roost here.

    There’s no point in MW mentioning regulated advice because it’s now unaffordable for the majority given the average pot size. A few years ago IFAs would have dealt with these people, the commission would have been small but advice was quick and easy to execute with the client protected. Now the client won’t pay the advice charge and the paperwork and risk involved makes it unecomomical for the adviser.

    I think substantial numbers of complaints about guidance will arise around the 5 year mark and the politics involved in pensioners being told they’re on their own with no one to blame should be interesting. I think the FCA is positioning its defence already.

    As well as chickens roosting in the RDR coup, you also reap what you sow…

  3. “there may be trouble ahead….”

  4. “Who, ultimately, is to blame if – 10 to 15 years on from now – those people regret whatever choice they’ve made, or complain they weren’t properly guided?

    “And actually at that point, it becomes difficult to sensibly argue that individual consumers shouldn’t accept responsibility. Nor, I think, would wider society expect otherwise.”

    Can we have this in cast iron writing MW?

  5. While scams are by far the biggest risk undermining the pension reforms, it’s difficult to see exactly what the industry can do to prevent this?

    In fairness to the FCA, they are putting as much resource and effort that they can into combating a problem that technically often falls outside their regulatory remit.

    Responsibility and if necessary blame must instead rest with the government who fast-tracked radical reforms without any meaningful consultation on the likely impact, and the mainstream media who have systematically sought to undermine confidence in the regulated industry while failing to make any clear distinction between questionable sales practices by regulated firms and outright fraud by unregulated firms.

    There has been criticism of the FCA from some quarters regarding their failure to deal with unregulated firms. Hmm. Perhaps the regulator by definition may have their hands tied somewhat when dealing with unregulated firms?!?

  6. Caveat Emptor – let the buyer beware. Just shows that the Ancient Romans were more advanced than we are today.

  7. I do like the fact that there is some formal recognition that responsibility is not just related to the adviser but also that the client cannot be just a passive participant….it is after all their money and their future. Well said Martin W

  8. The government has tackled the biggest scam – rescuing people’s money from the annuity industry scam. The next scam brewing is preventing DB pensioners from being offered a CETV retirement.

  9. @ Grey Area

    Yep; I have to agree, I was thinking of people getting scammed !

    Also if you think of it, this situation will only get worse now the FCA have change the requirement for G60 (other exams are out there) on transfers at point of vesting and S226’s

  10. If it really is a Y2K moment then all the prophets of doom will be proved wrong and actually very little will change.

    And when you think about it, that doesn’t seem too far-fetched. Those who don’t want to have to think about their finances will continue to buy annuities. Those who are more switched-on will continue to use income drawdown to spend their pension income in the most tax-efficient manner while leaving the rest to grow.

    Those will really want to blow the lot, well, before they would have only been able to blow the tax free cash and run down the fund at max GAD, now they get to blow the lot at once. But given that you could easily drain a fund to almost nothing within a few years if you took max GAD at old rates, the difference here is only in timescale, not in result.

    So actually an even better metaphor than Wheatley probably thought.

    (For those whom it passed by, Y2K was, if you believed the media, going to cause untold disaster as a result of most computer systems storing the year as 2 digits rather than 4, so that on New Year’s Day their calendars would go from 31st December 1999 to 1st January 1900. We were told that, just as pensioners will be unable to cope with the ability to spend their own money, computers would be unable to cope with the change in the date. Banks would go haywire. Power plants would go dark. Planes would fall out of the sky. I am not making this up. In the end, of course, it all proved to be nonsense. But not before a lot of people had made a lot of money as “Y2K consultants” feeding off everyone’s FUD – Fear, Uncertainty and Doubt. The pension reforms will be much the same.)

  11. Since G60 has been mentioned what exactly was there in the syllabus of G60 (and AF3) that prepares pension advisers for the new rules? I can answer my own question. Nothing.

  12. @ Ken Durkin

    Well reading the article and the 50 + comments on the FCA’s decision (G60 and of course other exams are available), there seems to be a good ole roman thumbs up vote from the “I’m alright jackers” and a oh dear looks like “Christians being feed to the lions” are back on the matinee slot at the colosseam ! from the rest ?
    Truth being, again yet another drive for stupid exams and reduction in the delivery for advice, at a time possibly when its needed most ?

  13. Ken

    You say, “Since G60 has been mentioned what exactly was there in the syllabus of G60 (and AF3) that prepares pension advisers for the new rules? I can answer my own question. Nothing”.

    From previous discussions it is apparent you believe such a qualification to be unnecessary to advise on the benefits/drawbacks of effecting a transfer from a DB scheme, but consider CeMAP and CeRER to be more appropriate. Thankfully in the Brave New World of pensions freedoms, a sanity check will be there to prevent DB pension members from throwing away their extremey valuable and irreplacable benefits. Yes there are circumstances where a transfer is very much in the member’s best interests but rightly so these need to be addressed by an expert, rather than someone who thinks “on the face of it I think a transfer is the best option”.

    Thus G60 and its successors are required post 5th April.

  14. @Ken

    Why are you so against people receiving the necessary advice from those qualified to offer it?

    Do you hold G60 or any of the relevant exams to offer this advice?

    Sometimes the best thing to guard people against is themselves, or their IFA mate in the pub.

  15. “Sometimes the best thing to guard people against is themselves” ? sorry that’s just …. well its brown and comes out the business end of Black Bess !

    “or their IFA mate in the pub” ? well mind the branches on the way down from falling from the top of that tree !!

  16. Having spent the last two days with a corporate client running 121s for the staff, I stand by my words.

    I saw a variety of people, factory workers thorough to mid/senior level managers (mid £20k up to £60k brackets) and not one understood the incoming rules, whilst the majority had them completely wrong. Only two understood and were aware of the tax trap and four were not even claiming higher rate relief via self assessment.

    Believe what you will, but in my experience, people need advice. It does not have to come from a chartered or level 6 adviser, nor should it cost an arm and a leg.

  17. Adamski

    Your last paragraph is the most important (which I totally agree) !
    However -:
    Yesterday-: I could deal with (at point of vesting) my clients DB,DC, S226 schemes offering full holistic review and analysis on the most appropriate retirement strategy to suit their needs.
    Tomorrow -: I cant !!

    The transfer of DB schemes (and some DC) (I agree) do need a higher level of work or expertise if you will, but not at vesting,

    But I am only a level 4 IFA with 24 years experience and knowledge, so people should avoid me in the pub (I’m easy to recognise Beret and big cigar) just in case !!!

  18. @DH

    I believe you may have taken my comment about IFA mate in the pub the wrong way. I did not mean to knock any other advisers (level 4 or 6). I was referring to people taking advice from their mate down the pub who knows everything about financial services.

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