The UK’s biggest commercial DC pension scheme is putting its pensions access functionality on hold over concerns it will be on the hook for guidance.
The People’s Pension, which is administered by B&CE, says the FCA’s January Dear CEO letter requiring providers offering access to ask suitability questions makes it uneconomical to be able to allow withdrawals for the hundreds of thousands of individuals with small pots who will be able to draw cash from April. The provider says members will be allowed to transfer to other schemes to access their cash, but warns this means they risk falling into the hands of disreputable operators and rack up needless fees.
The People’s Pension is calling for a £10,000 threshold below which second line of defence questions would not be required. It also wants individuals who have spoken to Pension Wise to be exempt from the second line of defence. It is also critical of the regulator’s delay in publishing final rules, which could be unveiled this week or next.
The call comes as concerns amongst providers grow as to the regulatory risk they could be subject to when managing transitions from one wrapper to another, for example from an accumulation pension to a drawdown plan. Providers are understood to be worried the more information they give to individuals, whether on an execution-only basis or through advice without a personal recommendation, the more exposed they are to claims to the Financial Ombudsman Service.
Darren Philp says: “The FCA Dear CEO letter has thrown a spanner in the works. They said they would be making rules after a board meeting in March, but we don’t know what they are going to do. We are keen to embrace the new freedoms but there is so much uncertainty that we still don’t know what the market will look like in April. We have built a solution but we will be pausing it because there is so much uncertainty.
“The FCA seems to be going back on its original position, coming late to the party and putting up a series of hurdles to people getting hold of their money that are contrary to what the chancellor has been saying. There is a lack of proportionality in making all these people with tiny pots effectively go through the guidance again. There is a real risk we will be forced to go through Pension Wise again – and if that happens, we could get dodgy schemes popping up saying ‘I can help you get your money quickly’. We think if you have been to Pension Wise then you should be able to get your cash straight away.
“If we don’t offer access to cash, people will have to transfer out to get their hands on their money, which means they will suffer another load of charges, and potentially go to some disreputable organisation. Surely this isn’t what the FCA wants.”
Independent compliance consultant Adam Samuel says: “In regulatory terms the difference between what is advice and what is not advice is not that great. What is important is whether the statements an organisation has made are clear, fair and not misleading. But the big problem for anyone offering mass market drawdown is that the more content you offer, the more likely you are to say something that turns out to be wrong. And the problem with web and telephone propositions is that unless you have actually heard a tape of the conversation it is hard to judge.”
An FCA spokesperson says: “We will be publishing final rules in the next week or so.”