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FCA pushes rules implementations back to 2021

8 April 2020

The Financial Conduct Authority has delayed the implementation of a number of new pension policy changes until 2021 as it refocuses its efforts on dealing with the Covid-19 pandemic.

The regulator said it would delay the rules, including raising qualification levels needed by pension transfer specialists, by 12 months until October 2021.

Under the new rules, introduced as part of the FCA’s drive to improve pension transfer advice, pension transfer specialists will be required to obtain an additional Level 4 qualification for providing advice.

In a statement, the FCA said it believes “the benefit to consumers from firms dedicating resources to dealing with critical functions in the short term may outweigh the harm from delaying the implementation of certain policies.”

Meanwhile, the new rules around investment pathways are also set to be pushed back by six months until February 2021. The new proposals require customers to be guided towards investment solutions tailored to four different options on how they may wish to use their pension pot, with the intention to minimise people moving their funds into cash.

The move was welcomed by pension specialists, who said the regulator should use the delay to consider whether changes should be made to the investment pathways.

Steven Cameron, pensions director, Aegon, said: “Investment pathways are designed to help non-advised drawdown customers choose a broadly appropriate investment solution but at the current time, this is particularly difficult even on a fully advised basis with a full understanding of the customer’s circumstances. Many customers will simply not be able to identify right now with one of the four prescribed retirement objectives at the heart of pathways.

“We support the deferred implementation which as well as allowing providers to focus efforts on more pressing priorities, will also provide time to understand if consumer behaviour in terms of investment choice as well as income levels taken will be influenced in the short or longer term by current events. This might require some changes to the design of pathways.”

Tom Selby, senior analyst, AJ Bell, commented: “Ploughing ahead with such a fundamental change at a time when all sectors are battling the unique challenge posed by the Coronavirus pandemic would have been a mistake and risked creating poor consumer outcomes.”

According to Selby, the regulator should take this opportunity to “fundamentally rethink” the reforms.

Selby added: “If investment pathways had been in place before the recent market sell-off, thousands of drawdown investors would have been exposed to significant losses with little understanding of why there were nudged in a particular direction. While investing in cash for the long-term clearly carries significant risk – namely where inflation eats away at your fund’s real value – there are perfectly logical reasons to hold a decent chunk of cash in your portfolio at any given time.

“Recent events have also reminded all of us that bull markets do not last forever, and when they end they can be painful for investors.”

It was a view echoed by TISA retirement policy manager Renny Biggins, who said the world has changed significantly since the rules were designed.

Biggins added: “Whilst the actual requirements themselves remain unchanged, the unprecedented market turbulence we are currently experiencing may cause firms to reconsider the composition of the pathway investments that form part of their propositions.

“Given the increasing importance of DC pensions in providing an income in retirement, this is a welcome step to protect financial wellbeing.”

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