The pensions sector is being closely monitored by the Financial Conduct Authority (FCA) at present and some of the latest regulatory pensions news includes:
Speech warns that pension transfer advice is not of an acceptable standard at present
Deb Jones, Director of Supervision, Life Insurance and Financial Advice at the FCA, began her speech about the regulation of pensions by commenting how much things had changed – 34 million UK consumers are serviced by the pensions sector, and the over 85s are now the fastest growing age group.
Ms Jones alerted her audience to the proposed ban on contingent charging and the other new pension transfer rules. She added that FCA supervisory activities between the introduction of the pension freedoms and September 2018 suggest as many as 69% of people who took advice on a possible transfer were advised to transfer out of a final salary scheme, even though the FCA says a transfer would not be in the interests of most consumers.
This supervisory work has revealed that only 50% of cases result in suitable advice being given, and the regulator estimates that poor pension advice is costing consumers between £1.6 billion and £2 billion each year. The FCA speaker added that the problem is not confined to a few rogue firms either, as 60% of firms recommended that at least 75% of their clients should transfer.
Ms Jones said the FCA would continue to supervise the pensions sector closely “until the pension transfer advice market has reached an acceptable standard.”
Major provider fined over non-advised sales
Although no advice was given, one of the major players in the pensions sector has been fined £23,875,000 for various failings related to annuity sales. Many of its customers who were approaching retirement may have been eligible for an enhanced annuity or may have been eligible for a better rate on the open market for either a standard or enhanced annuity. However, the firm failed to make many of its customers aware of the availability of these enhanced annuities.
The FCA also comments on the firm having “large, sales-linked incentive schemes for call handlers and managers which increased the risk of inappropriate customer outcomes” suggesting that this may have deterred the firm’s staff from giving information about shopping around for the best enhanced annuity.
The provider will now conduct a past business review of non-advised annuity sales in order to identify customer detriment and pay proper redress to customers who are likely to have suffered loss. It has completed this exercise for just 10% of the 183,000 customers who may be affected and £110 million in compensation has already been paid.
Most retirees continue to access their pots without taking advice
The latest retirement income market data from the FCA shows that, in the 2018/19 financial year, only 37% of people sought professional advice before accessing their retirement savings. A further 15% sought guidance from Pension Wise, meaning a significant minority (48%) opted not to seek advice or guidance.
The 2018/19 data is not very different from those reported by the FCA in the previous two financial years. In the 12 months to March 2019 350,000 pension pots were fully withdrawn at the first time of access but 90% of these withdrawals were of £30,000 or less. The average pension pot provides income of £2,500 per year, which is not a large amount, but many people will of course have more than one pot.
HMRC reveals the limited provision the average person is making
HM Revenue & Customs figures show that the average annual pension contribution has fallen to £2,700. This means that, if someone contributes for 40 years, their personal contribution will be £108,000, which is unlikely to provide for a comfortable retirement unless there have also been generous employer contributions to the pension schemes.
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