Since 2015, the FCA has seen a seismic shift in people drawing their pension savings flexibly.
Naturally pensions freedoms, introduced by the former Chancellor George Osborne, were the launchpad for this and were intended to instil consumer confidence and engagement in retirement planning, by allowing greater access to pension pots, in particular for defined contribution pensions.
The facts speak for themselves.
According to HMRC’s statistics for 2021, ‘throughout January, February and March 2021, £2.6 billion was withdrawn from pensions flexibly. This represents a 6% increase year-on-year from £2.5 billion withdrawn throughout the same months in 2020. The total value of flexible withdrawals from pensions since flexibility changes in 2015 has exceeded £45 billion’.
(Source: HMRC “Flexible payments from pensions”, updated April 2021).
In some ways the FCA was caught a little ‘off guard’ and hastily introduced a plethora of FCA regulations to protect consumers from what it saw as the potential unintended consequences of these new freedoms. The mandatory requirement for advice in some circumstances was just one of the changes.
It was obvious that the FCA had to revisit the implementation of the new legislation and whether consumers were experiencing harm. The risks to consumers were real, especially as changes to tax rules were hastily introduced, alongside the primary legislation, to limit tax leakage. This included fettering annual allowances and eye-watering charges on uncrystallised funds pension lump sums.
Then COVID-19 put paid to that review, as the FCA had other, more pressing, priorities. In May 2023, the review is firmly back on the agenda, and the FCA’s thematic review, ‘Assessing Suitability Review Part 2’, is now in full flight.
The new thematic review is examining how the retirement income advice market is functioning and also how firms are responding to changing consumer needs as a result of the rising cost of living.
I think it’s unlikely that the FCA will immediately introduce new FCA regulations following the review, but it may use it as catalyst for more focused research, consultations, and ultimately the tightening of rules. Naturally, the FCA will have to keep in step with the Government’s agenda – any changes should protect consumers but not inhibit the Government’s policy objectives of increasing consumers’ participation in making adequate retirement provision. The regulator also needs to be mindful of the economics of advice and the growing advice gap. Certainly, its own free of charge pension guidance services will be under the spotlight, such as Money Helper, provided by the Money & Pensions Service, and of course Pension Wise.
The review will certainly be extremely wide and will inevitably include warm-up communications from pensions providers, marketing promotions, and of course regulated advice. No doubt the Consumer Duty will be an important point of reference.
For advisory firms and wealth managers, the question is, what should we be doing now?
Few advisory firms won’t have given advice that incorporates the new freedoms, if only by considering this during their periodic suitability reviews. So it makes a lot of sense to review that ‘post-2015 advice’.
It is difficult for us to predict the FCA’s focus, although the main interest for financial advisers is likely to be in:
Thistle Initiatives has supported firms for over 10 years as a trusted compliance and regulatory advisor. In addition to assisting, you as and when our team of specialists can serve as your right hand in a meeting and complying with FCA regulations. We understand the importance of staying up-to-date and compliant and are dedicated to providing the guidance and support needed to do so.
At Thistle, we can help with reviewing all of your in-scope advice, or your advice processes and the tools you use. You may also wish us to advise you on criteria for approving future advice and even your appropriate T&C. Contact our specialist team now to schedule a free consultation. Get in touch with us by calling 020 7436 0630 or sending an email to info@thistleinitiatives.co.uk.