We know there is an issue with potential recycling risks – this is where money is taken from a pension and then recycled back into the plan in order to gain further tax relief. The Treasury press release makes very little mention of loophole closing. Without this regulatory scrutiny, these pension freedoms could be nothing more than a misselling charter. There will therefore be a huge job for the FCA to do in policing these new products, and the sales processes around them, to ensure that investors are sold competitively priced and appropriate products. The guidance guarantee will not help them here as it will not provide specific product advice, and paying for an independent financial adviser may be too expensive to justify.
In many cases it will be unsophisticated investors with relatively small pots of perhaps only a few thousand or tens of thousands of pounds. It will become increasingly difficult for ordinary investors to discern whether they are actually getting a good product or not. However, will these utility services have sufficient capacity to deliver the guidance to the hundreds of thousands who will ask for it?Īlso, the Treasury is opening the door for further product design: more flexible annuities which allow longer guarantees and one-off payments and other complex products with intricate guarantees. The Treasury has very sensibly opted for a demonstrably impartial solution, looking to the likes of MAS and TPAS rather than pension providers to deliver the guidance.
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“We’re making sure that people have the right support to make their own choice about how best to finance their retirement and I’m pleased to confirm that everyone with DC pension savings reaching pension age will get free and impartial guidance on their range of available choices at retirement.” This includes setting and monitoring the standards with which guidance providers will have to comply, making and enforcing rules on how contract-based DC schemes signpost to the guidance services, and adjusting the FCA’s existing conduct rules to support the introduction of the guidance guarantee and in response to the new flexibilities.Ĭhancellor George Osborne (pictured) said: “It’s right to support hard-working people that have taken the long-term decision to save for their future and I’m pleased that the responses we had to our proposals on making pensions more flexible have been overwhelmingly positive.
The FCA has also published a paper that consults on the elements of the guidance guarantee for which it will be responsible. A new override will be introduced so that pension schemes are able to offer individuals flexible access to their savings and the pensions tax rules will be amended to allow providers to develop new retirement income products that are tailored to the needs of individual pension savers.It will continue to allow individuals to transfer from private sector defined benefit pension schemes to defined contribution (DC) pension schemes, subject to two new safeguards: a new requirement for an individual to take advice from an impartial financial adviser regulated by the Financial Conduct Authority (FCA) before a transfer can be accepted and new guidance for trustees on the use of their existing powers to delay transfer payments and take account of scheme funding levels when deciding on transfer values.
The government’s response to the consultation also confirmed that:
The guidance will be offered through a broad range of channels, including web-based, phone-based and face-to-face.Ī levy on regulated financial services firms will pay for the free guidance.
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