Retirement Reforms – Risk Warnings

The FCA has published Policy Statement PS15/4 “Retirement reforms and the guidance guarantee: retirement risk warnings”. You can access it here.

With ‘pension freedoms’ being available from April 2015, consumers will have greater choice about how they access their pension savings. The FCA are concerned that consumers may not be well equipped to make these important decisions, which for some may be irreversible. These concerns apply particularly to consumers who are generally not engaged with retirement decision making and who do not take regulated advice or the offer of guidance from Pension Wise (the Government’s new pension guidance service). This could lead to poor outcomes for consumers.

New rules come into force on 6 April 2015 for firms operating personal pensions, stakeholder pensions, selling pension decumulation products or facilitating the access of pension savings on an execution-only basis.

Although these rules are mainly aimed at providers if you are advising clients in this area it is worth ensuring you cover the points the FCA mention in their policy statement. 

Firms will be required to ask customers relevant questions relating to their retirement plans and circumstances, based on their chosen method for accessing their pension, with the aim of identifying the risks factors within their chosen method of access. The aim of these requirements is not to duplicate the Pension Wise service, or act as a replacement for regulated advice, but to:

  • Help consumers understand the implications of their decisions;
  • Further prompt consumers to seek regulated advice or guidance from the Pension Wise service;
  • Help firms understand the FCA’s minimum standards for customer risk warnings.

The FCA have listed their core expectations based on how consumers access their pension savings, although firms should consider if there are specific risk factors they should add. They have also listed a number of example questions to help firms identify if a risk factor is present, and therefore if a risk warning must be given. Again the list is not exhaustive or prescriptive; the FCA expects firms to consider what they think is appropriate. The main considerations are: 

  • Consumer’s state of health;
  • Loss of guarantees;
  • Does consumer have a partner or dependants;
  • Effect of inflation;
  • Whether the consumer has shopped around; 
  • Tax implications;
  • Charges (if consumer intends to invest their pension savings);
  • Debt;
  • Sustainability of income in retirement;
  • Impact on means-tested benefits;
  • Investment scams.

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

This covers areas an IFA should be considering when advising clients in this respect and issues that should be documented in Suitability Reports.

Action Required By You

Read the Policy Statement and ensure your Suitability Reports have appropriate risk warnings. Access the Policy Statement here.

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About the Author

Steve is an ATEB Director and has a deep understanding of all matter regulatory, built up over his 30 years + in the industry. With a training background and a technical brain, he overseas numerous complex projects and client implementation work.

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