The FCA announced in January 2023 that it will be kicking off its long-awaited thematic review of retirement income advice. The question is, what is the regulator likely to find, especially in light of the Consumer Duty?
This review is linked to the Government’s Call for Evidence issued in the summer of 2022, in which it explored the support given to personal pension scheme members on how to use their pension savings. Based on this research, the FCA introduced new measures to support personal pension holders, to make the most of their pension savings.
The Department of Work and Pensions (DWP) also wants to achieve similar and hopefully even better outcomes for people saving into their occupational pensions. The DWP’s focus is that those saving into these pensions should also have access to support that allows them to make informed decisions and achieve what they want from their pensions. Consequently, the DWP has issued its own Call for Evidence to find out, in particular from people saving into occupational pension schemes, what information and support they expect and currently receive.
Let’s not lose sight though of important safeguards introduced – it’s worth reflecting on how the financial services industry has adapted to so-called ‘pensions freedom’ to protect consumers. For example:
However, advisory firms need to focus their attention on the FCA’s thematic review of retirement income advice. Its purpose will be to gather information, allow the FCA to draw initial conclusions, and then comment on its findings.
Importantly, this type of review is typically an early indicator of the direction of travel for the FCA and, depending on what it finds, may lead to further reviews and consultations on amending or adding new regulations. It is also likely that this will set the course for secondary legislation and more guidance for pension scheme providers.
If your firm provides retirement advice, you’ll need to be aware that whilst the industry continues to wrestle with issues around past unsuitable and/or non-compliant defined benefit transfer advice, this thematic review is likely to bring into focus some fundamental principles of your at retirement advice; especially given the pensions freedoms introduced in 2015 and the widening of choice available to retirees, the FCA will be live to the potential life-changing harm created through poor advice.
Inevitably the FCA will be concerned, not that customers are given more choices, but with the plethora of choices, and that there is a greater dependency on the quality of information and advice given to retirees. For example, advisers need to ensure their clients with money-purchase pensions are aware of the tax on death implications, pre and post-age 75; and the variety of circumstances which will trigger the Money Purchase Annual Allowance, significantly affecting current and future opportunities for large pension contributions. These are just a few of the significant advice points - I won’t go into the technical aspects of pensions; financial advisers will know these. But it’s important to consider the impact on customer outcomes.
This is very much the theme of Consumer Duty- helping customers avoid foreseeable harm. In addition, with the investment market turmoil caused by Covid and the conflict in Ukraine, enabling clients to make good decisions through appropriate information will certainly feature in this review.
So, as the FCA’s thematic review takes off, now is a good time to review your past at retirement advice to ensure it’s flight ready. The following outline some of the considerations you may wish to take in your review :
• Does the firm have an accurate and up-to-date picture of the client’s personal, health, and financial circumstances, upon which to base its advice?
• Has the firm made an accurate assessment of the client’s long-term income needs, the potential sources of that income, and the order of drawing income from these sources?
• Does the advice reflect the most tax-efficient strategy for drawing income?
• Does the firm have a clear understanding of the specific income objectives of the client? For example, “to allow a more flexible way of drawing my income” is unlikely to be accepted as a reason for switching to a flexible retirement vehicle.
• Will an existing retirement vehicle provide the flexibility the client is requiring?
• Has the firm assessed the client’s specific attitude to risk relating to the loss of retirement income?
• Has the advice considered ‘3rd way’ retirement solutions?
• Has the periodic assessment of suitability taken into account the client’s changing circumstances and retirement choices, for example, whether a rise in annuity rates or a change in health and age brings annuities into real consideration?
Time will tell what the FCA’s findings and the view will be following its thematic review. However, it will inevitably shine a light on good and poor practice for retirement advice, so it is advisable to take steps now to review each piece of advice.
Thistle Initiatives has supported firms, including cryptoasset 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 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.
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If you would like Thistle’s help by providing an in-depth, independent assessment of your retirement advice and your firm’s associated policies, procedures and controls, 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.