FCA bows to pressure on ex-only decumulation process

The FCA is forcing providers to set up a ‘second line of defence’ against bad execution-only decision-making following sustained pressure from campaigners.

Government pensions champion Dr Ros Altmann and a number of retirement product providers that have been calling for a backstop to stop people rolling into unsuitable decumulation vehicles are celebrating the FCA’s change of stance on the issue.

In November, the regulator had said no second line of defence was necessary. Pensions minister Steve Webb has also recently gone on record saying he did not want a box-ticking exercise that made the process more cumbersome.

But in a letter to the chief executives of providers yesterday, the FCA confirmed they will have to ask consumers key questions, and give relevant risk warnings before allowing execution-only sales to be made.

Under the new additional protection 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.

Providers will be required to give relevant risk warnings about products and their tax implications, in response to answers from the consumer, as well as pointing them to the Government’s Pension Wise guidance service.

Once the additional questions have been asked individuals will still be able to proceed on an execution only basis.

The rules, which are being introduced without consultation, will come into force from April.

Firms will be required to deliver these messages in a direct and simple language, which will be set out when the new rules are published.

FCA director of strategy and competition Christopher Woolard says: “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.”

Dr Ros Altmann says: “Having called for this for years, I’m of course excited to see this finally happening.

“I am so delighted that the FCA will finally force firms to take more care of their customers, asking vital questions and warning them about the risks of irreversible pension choices. At last, pension providers will have to do more to give their customers a fair chance of making the right decision, rather than relying on customers themselves to understand all the complexities of pension choices. Of course, this should have happened long ago, but I welcome it now nevertheless.”

Partnership Assurance managing director of retirement Andrew Megson says: “While the new pension’s regime will introduce the Pensions Wise Service and more opportunities for consumers to personalise their retirement finances, it also has the potential to confuse people with a multitude of options.   The ‘second line of defence’ is vital as it means that at the very least people are asked about their health, marital status and lifestyle choices – all factors that can have a significant impact on retirement choices.

“We have been a strong advocate of the open market option and the ‘second line of defence’ should act as a prompt to ensure that people do shop around more.   Independent financial advisers have a significant role to play in helping people to make smart choices around retirement and today’s announcement clearly highlights the fact that the FCA sees them as a valuable part of the process.”