FCA wants pension providers to offer 'additional protection' under pension reforms

The regulator wants to compel pension providers to deliver "additional protection" under the guidance guarantee framework accompanying new freedoms being delivered to pension savers from later this year. It follows its announcement about its new pension guidance service Pension Wise earlier this month which has been designed to ensure consumers are informed about the options they have when they come to access their pension savings.

Pensions expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, said: "The aim of the Pension Wise guidance was to ensure that individuals would be in a position to make appropriate decisions about their pension savings on retirement. The government has made much of the fact that the guidance is impartial. And yet now the FCA is effectively recognising that the guidance isn’t enough and providers should do more for pension savers."

"Much will depend on how the requirements on providers and the Pension Wise guidance tie up.  It is important that savers receive the right sort of information in a form that they can readily understand," he said.

The new measures proposed by the FCA, if backed by its board, would require pension providers to get a better understanding of pension savers' personal circumstances and how they "relate to the decision they are making about their pension pot", the FCA said. Pension providers could be forced to ask questions about individuals' health and lifestyle choices or marital status, for example, the regulator said.

In a letter to pension industry chief executives, the FCA said: "To ensure appropriate protection of consumers, accessing their pension saving, and assist firms we intend to seek approval from our board for further steps to clarify what we expect firms to do. These rules will, by April, provide additional consumer protection by placing a requirement on pension providers for, what has been commonly referred to in debate as a ‘second line of defence’ (to avoid confusion with common risk terms, we intend to refer to this as ‘Additional Protection’)."

"When a customer contacts their pension provider to access their pension, providers will be required to ask the consumer about key aspects of their circumstances that relate to the choice they are making. Providers will be required to give relevant risk warnings in response to answers from the consumer. They must also then further highlight that Pension Wise, or regulated advice, is a key part of protecting themselves and their family when making an important and irreversible decision," it said.

"We will require these messages to be delivered to customers in very direct and simple language and propose to set this out in new rules. This will be in addition to the requirement, already included in our near final rules, to remind customers of the availability of the pension guidance (Pension Wise) and how to access it and the requirement to describe the tax implications where a customer plans to take cash from their pension pot," the FCA said.

From April 2015, members of defined contribution (DC) pension schemes will have more freedom to access their pension savings in any way that they wish from the age of 55, without facing heavy tax penalties or necessarily having to buy an annuity. This new freedom will be backed by a right to guaranteed free and impartial guidance at the point of retirement.

Face to face Pension Wise guidance will be provided by the Citizens Advice Bureaux in Scotland, Northern Ireland and England and Wales, while telephone guidance will be provided by the Pensions Advisory Service. All official delivery partners will use the Pension Wise name and branding. Guidance will be tailored and personalised, but will not recommend specific steps, products or providers in the same way as regulated financial advice.

Christopher Woolard, director of strategy and competition at the FCA said: "The decisions consumers make about what to do with their pension pot are important and in some instances these choices are irreversible. We want to make sure that people have the help they need to make those choices."

UK government research published earlier this month found that 39% of people in employment over the age of 50 would like to continue working in a part-time capacity or with flexible hours before retiring completely from work. Nearly half of workers between the age of 50 and 65 said they would like to still be in employment between the ages of 65 and 70.