Under the government’s radical pension reform plans from next month anyone aged 55 or older will have significantly greater freedom to deal with their defined contribution savings next month, including the ability to access all of their funds almost immediately.
“This is clearly a critical period of change, and certainly one that will define our professional lives over the coming years,” the FCA’s chief executive Martin Wheatley told members of the National Association of Pension Funds meeting in Edinburgh.
Both the pensions industry and the government have been scrambling to make sure systems and products are in place to ensure both the delivery of new pension products by the April deadline and to ensure that consumers are not misled nor overcharged when taking advantage of the new freedoms.
Wheatley said the industry needed to be especially aware of its “joint responsibility” for consumer protection going forward.
From 6 April, when consumers seek to access their pension funds they are going to be required to seek guidance from either a government-run service called Pension Wise or from an independent financial adviser.
Last chance warning
After which, Wheatley said, when a decision has been made, the system will effectively impose a second line of defence that could trigger a personalised risk warning. “Allowing a final opportunity for people to assess the wisdom of their choice,” he said.
“Effectively then, what we’re describing here is a division of responsibility between consumers, firms and policy makers that is a long way from today’s annuity-based system,” he said.
Wheatley admitted there was a lot of anxiety in the industry over the coming reforms and who would bear ultimate responsibility if consumers make bad choices.
“Who, ultimately, is to blame if – ten to 15 years on from now – those people regretwhatever choice they’ve made, or complain they weren’t properly guided?”
“Understandably, as we approach April, there is some industry anxiety here, particularly over issues like liability – and how far providers need to go to warn consumers. Or prevent them from making choices that they believe are against the consumer’s best interests,” he said.
Scam warning
Wheatley said he was particularly concerned about the risks consumers faced in the months following the introduction of the new reforms when there could be a lot of uncertainty about the new rules.
“One of the most important risks is the possibility that some customers in this first tranche to benefit from the new freedoms, will be targeted by criminal enterprise. Scams and fraud, we know, tend to proliferate at the moment of maximum uncertainty.”
“Or the possibility that firms target consumers, before they hit 55, with pension liberation scams, persuading them to access their money before the rules allow access. A particular risk, given that many of those approaching retirement today will – unlike their parents’ generation – be carrying debts with them,” he said.
