FCA thematic review to act as 'bellwether' for Consumer Duty rules

Pensions industry organisations have welcomed the Financial Conduct Authority’s plans for a thematic review of retirement income advice, suggesting that it could act as a "bellwether" for the implementation of the FCA's new Consumer Duty rules.

The FCA yesterday (19 January) announced plans for a thematic review to consider how financial adviser firms are delivering retirement income advice and assess the quality of outcomes consumers are getting.

Commenting on the plans, Standard Life managing director for retirement income, Claire Altman, emphasised the importance of retirement income advice, arguing that the decisions regarding retirement income are some of the "most complex financial choices individuals face".

She stated: “The numbers of people retiring with defined contribution (DC) savings will only increase following the massive success of auto-enrolment.

"But we need to remember that DC was not chosen by policy makers because they wanted to give individuals the responsibility of managing their own financial retirement decisions but was a by-product of the move away from defined benefit (DB) once it was no longer affordable for sponsors.

“We have not yet as an industry properly grappled with the full implications of that decision by policy makers – over 50 per cent of retirees do not currently have help with managing their financial decision making at retirement.

“Now is a good time to look again at how the retirement income advice market has developed particularly as the tables have turned and we have now entered a period of higher annuity rates so retirees have a greater chance of being able to benefit from income certainty in retirement as well as flexibility.”

Quilter head of retirement policy, Jon Greer, agreed that it is "right that this thematic review announced by the FCA looks at how financial advice is helping consumers navigate these difficult and often perilous decisions".

“Planning your retirement is one of the most important decisions of your lifetime and financial advisers have a hugely important role to play in helping people make the best of their pension savings and ultimately accessing the best possible retirement," he continued.

"Making the wrong choice could make the difference between someone enjoying a fulfilling retirement and one where they are struggling to make ends meet."

Greer also suggested that the results of the review from the FCA will be a "bellwether" for how well firms are implementing Consumer Duty, noting that the new regulation requires advice to be outcome-based and avoid foreseeable harm.

"Advisers will no doubt have an eye on how they document their advice and the solutions they use through the consumer duty lens with particular emphasis on protecting their customers from foreseeable harm," he explained.

Indeed, Aegon pensions director, Steven Cameron, explained that the timing of the review will overlap "with an intense period of preparing for the new Consumer Duty which is likely to lead to some changes in adviser retirement advice propositions".

He continued: " Advisers need to help their clients navigate many uncertainties including future and varying income requirements, short- and long-term investment returns, inflationary trends and of course how long clients might live.

"In new Consumer Duty terms, this presents many foreseeable harms which advisers will be considering as part of delivering good outcomes. Some such as running out of money too soon, or taking less income than is sustainable, can be in conflict.

“While preparing for the new Consumer Duty, we expect many adviser firms will be reviewing their retirement income advice propositions and we hope the thematic review will allow for these.

"While it may be difficult to completely avoid all potential foreseeable harms, we expect advisers will be making all of these clear to clients so they can agree which need avoided as priority.“

Broader changes may also be needed, however, as Greer argued that the government should also look at some of the other aspects of the pension system to see if they are working as they should too.

"The money purchase annual allowance, for example," he stated, "is a contradiction to the principles of freedom and flexibility and government should consider whether it is achieving the desired outcome and explore whether a general anti-abuse approach could work better than the rigid, strict approach currently employed."

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