The Financial Conduct Authority (FCA)’s technical specialist has confirmed that the regulator will conduct several pension-related market studies over the next year, including one looking at the advice consumers are receiving in light of the new pension freedoms, and another covering non-advised sales of pension drawdown contracts.
Addressing the annual conference of financial advisers’ trade association the Institute of Financial Planning, the FCA’s Rory Percival said:
“On the non-advised side, we will look at whether customers are getting the right information and whether they are making the right decisions based on that information.
“We will also look at whether people are getting suitable advice, which is a market study so quite a big piece of work. Clearly we needed to wait until we were a number of months into the new regime before we could assess that.”
Mr Percival suggested he had concerns over the fact many people had entered into complex drawdown contracts without having an adviser to provide ongoing servicing, and over the level of charges being levied.
The introduction of the new pension freedoms on April 6 2015 – allowing all holders of money purchase pension schemes aged 55 or over to access as much of their fund as they wish, has given rise to a number of regulatory and consumer protection issues:
• The Government has commenced a consultation on the exit charges being levied by providers, and the ease of the switching process. Not all providers are offering full access to the freedoms, and so some consumers have thus been prompted to switch to another provider that will allow full access
• More financial advisers are being faced with insistent client situations, particularly where clients wish to withdraw all of their fund, but where this is not good advice due to the tax implications or other factors. The FCA, via Mr Percival, has designed a three-point strategy for advisers to use in insistent client cases
• Advisory firms are facing ever increasing regulatory costs, leaving them increasingly unable to service mass market clients who might benefit from advice on their retirement income options
• Take up of the Government’s free Pension Wise guidance service has been fairly low, and concerns have been raised over the limited experience some of the staff have
Based on an analysis of 23 providers, the FCA has revealed that 84% of consumers have not been charged a fee to switch their pension.
Of the 204,581 people who have accessed their pension savings between April 6 2015 and July 5 2015 (the period covered by an FCA survey):
• 57,568 (28.1%) made a full cash withdrawal of their fund (this is the new Uncrystallised Fund Pension Lump Sum or UFPLS option that became available in April)
• 53,543 (26.2%) made a partial withdrawal via a drawdown policy
• 43,094 (21.1%) used the small pots payment method – full cash withdrawal of a pension pot worth £10,000 or less
• 17,912 (8.8%) fully encashed their fund via drawdown
• 16,872 (8.2%) withdrew just the tax free lump sum of 25% of the fund as cash
• Only 12,418 (6.1%) purchased an annuity – this figure is less than one seventh of the number of annuities purchased in the equivalent time period in 2013
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.