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”.