Another week, another chunky missive from the FCA. Although happily, PS16/12: Pensions reforms, feedback on CP15/30 and final rules and guidance didn’t make me feel like turning green and smashing stuff. So that’s a good start.
PS16/12 follows on from CP15/30: Pensions reform, proposed changes to our rules and guidance. It looked at whether consumers have proper access to products and services, value for money and competitive markets. Naturally, pension freedoms, or any barriers investors might be facing to access them, featured heavily.
Not surprisingly then, PS16/12 is pretty wide-ranging. So this is more of a round-up, a collection of nuggets (chicken-free) with the potential to keep providers and advisers busy for the foreseeable. Sorry. Busier.
The bulk of the paper concentrates on three areas (the objectives of the consultation paper):
There are a number of points worth a mention but too many for here. However, two themes dominate. First that investors must have ready access to all the information they need to make an informed decision. And secondly, the rules being laid down are minimum requirements. Firms can add to them as they see fit as long as whatever is being issued remains user-friendly and investors do not fall victim to information overload. And there will be no specification or prescription, so don’t ask.
Ensuring the market works well
Most respondents agree that the retirement risk warnings introduced sans consultation in February 2015 should stay, but improvements are afoot. For instance, providers can start to ask questions to identify which risk warnings should be given before the investor has decided how they will access their pension savings. Again, no specifics as firms are best placed to spot the key risks for their customers.
One worrying aspect of the pension freedoms is investors being put under pressure to use their pension savings to repay debt. Apart from the obvious it also goes against Principle 6 (treating customers fairly) and CONC 7.3.10R. So the FCA will remind firms of the existing line between the regulated activity of advising on the conversion or transfer of benefits and that of advising on investments.
Of the other areas covered, a couple stood out for me.
Non-advised annuity purchase
A curious one. There are real concerns over consumer detriment here, primarily that the commission from a non-advised annuity sale could out-strip what would have been charged for advice. Not only is this a cost to the client but there is also a risk of commission bias (yes, still). But, how much of an issue is this? Well, not as much as all that it seems. There is “limited robust quantitative evidence on the nature and extent of any possible detriment”. Further evidence is needed and that will come as part of the Retirement Outcome Review.
A number of suggestions were made in response to the consultation paper that the onus for the insistent decision should be placed with the individual client. Either through something similar to the proposed MiFID II appropriateness test or by insistent clients giving up some rights to redress in the manner of certified high net worth clients.
This formed part of a much larger discussion on pension transfers which will require a great deal more work. And the regulator sees no reason why it should do all the heavy lifting: “we believe there is a responsibility upon the industry itself to consider how it can deliver on customers’ expectations” with the client’s best interests staying at the heart of things for advice. Leave that one with you then.
Some rules are effective immediately, some in six months and a few have been held back until 6 April 2017 to allow for necessary system changes and so forth. Although changes can be made in advance of these dates, which is casually mentioned once or twice throughout the paper. Some other areas don’t lend themselves to change without further work and we’ll be keeping an eye out to see what the next steps reveal.
One question which won’t wait is why the covers of both these papers feature women looking slightly dazed while standing in retail environments. Deciding what to have for tea? Just found out when they’ll get their State Pension? We should be told.