Will the FCA require providers to quiz consumers on why they are accessing their pension pots?
The Financial Conduct Authority (FCA) has written to Chief Executive Officers of pension providers outlining plans for “additional protection” for those accessing their defined contribution (DC) pension pot from April 2015.
Under the new rules, firms will be required to:
- Ask consumers about key aspects of the circumstances that relate to the decision they are making about their pension pot. These include issues such as health and lifestyle choices or marital status
- Give relevant risk warnings, such as the tax implications of consumers’ decisions, in response to the answers they receive
- Highlight that the Pension Wise service or regulated advice, is a key part of protecting members and their families when making an important and irreversible decision
Firms will be required to deliver these messages in direct and simple language which the FCA intends to set out in the new rules when published.
The content and timing of the rules are subject to a decision by the FCA’s Board, but the intention is to bring them into force on a temporary basis without consultation to provide timely additional protection. The FCA then hopes to carry out the consultation required in order to determine whether to permanently retain these rules as part of the review of all regulatory requirements around the customer’s interaction with providers in the run up to retirement, scheduled for the first half of this year (see Pensions Bulletin 2014/50 for more detail).
During Report stage of the Pension Schemes Bill, Lord Newby confirmed that the Department for Work and Pensions is working with the Pensions Regulator to consider how this so-called “second line of defence” can be extended to trust-based schemes.
Comment
It seems the motivation behind the proposed new requirements is two-fold; to ensure that consumers are engaged and aware of the potential consequences of accessing their DC pots and to assist providers who are unsure how far they should go in helping their customers make good decisions about their retirement savings. It is indeed possible that in some cases a few strategic questions might change an injudicious plan. However, to what extent providers and consumers alike consider this an unnecessary intrusion rather than a benefit remains to be seen.
Regulator publishes research on the success of its new code of practice and latest annual defined benefit funding statement
The Pensions Regulator has published the findings of a quantitative survey conducted following the publication of its second defined benefit (DB) funding code of practice last June alongside the third annual DB funding statement (see Pensions Bulletin 2014/24).
The main objective of the survey was to determine the extent to which the messages in the publications had reached the intended audiences – actuaries, trustees and employers – and were understood. Other objectives included ascertaining perceptions of the publications and the extent to which they will inform, where applicable, forthcoming scheme valuations.
Among the findings were that whilst awareness of the new code and of the key messages in it were high across all three audiences, awareness of the funding statement and messages that featured exclusively in it were both relatively lower and lower in comparison to previous years. The survey also found that when asked what support respondents would like from the Regulator, more case studies, examples, simple practical guidance and being on hand to help when needed topped the list.
Comment
While it is interesting to note the disparity in awareness of the new code of practice and the latest annual funding statement, it is perhaps not surprising as they were published at the same time and the new Code was both highly anticipated and heavily publicised.
Banking reform and pensions – regulations laid
Last July (see Pensions Bulletin 2014/31) the Treasury issued for consultation regulations setting out how pension liabilities must be treated when banks are required to “ring-fence” their retail and investment banking businesses.
The regulations have now been laid before Parliament and are expected to come into force soon. There are a number of technical changes compared to the drafts sent out for consultation, but the guiding principle that ring-fenced bodies will need to separate themselves from the pension liabilities of non-ring-fenced bodies in the same group remains and has been further developed.
UK’s largest pension funds aim to improve Responsible Investment reporting
A guide produced by 16 of the largest UK asset owners – between them controlling over £200bn in assets and including NEST and the Pension Protection Fund – has been published by the National Association of Pension Funds.
The guide aims to clarify the group’s responsible investment reporting expectations, with a view to improving how fund managers report back to investors on the ways they are integrating environmental, social and governance factors into their investment decisions.
Concerns raised over quality of Pension Wise
Concerns have been raised that the Government’s pensions guidance service for those wishing to exercise the new pension freedoms will not be “Pension Wise” when it launches in April.
In particular, there is a worry that the recruitment process has started too late and that staff will lack the necessary experience and qualifications to give expert assistance when the scheme rolls out on 6 April.
Although the Pensions Advisory Service, which will be responsible for delivering the telephone guidance element of the service, is recruiting staff with the same level of pensions experience as their advisers (ie five years’ experience working in pensions and a qualification), Citizens Advice, which will provide the face to face element of the guidance, has said that it is not looking to recruit “pensions experts” as the policy intention is clearly to provide guidance and not advice.
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.
