Members of the advice industry has welcomed the Financial Conduct Authority’s decision to recommence its thematic review into retirement advice, and have called it a bellwether for firms’ Consumer Duty implementation.
Following a pause for the pandemic, the watchdog announced that it would resume its review of how the retirement income advice market is functioning and how firms are responding to changing consumer needs as a result of the cost-of-living crisis.
The introduction of the pension freedom reforms in 2015 transformed the way consumers access their retirement savings but it has added to complexity within the pensions system.
In a statement, the FCA said: “Advice in this area can be complex, so it is important firms understand the needs of their consumers and ensure their advisory solutions deliver consistently suitable advice.”
Steven Cameron, pensions director at Aegon, said the timing overlaps with a period of preparation for the new Consumer Duty which is likely to lead to some changes in adviser retirement advice propositions.
Cameron said: “Retirement advice is central to many adviser businesses and is one of the most complex as well as valuable areas of financial planning. 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.
“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.”
Jon Greer,, head of retirement policy at Quilter, believes the results of the review will also be a “bellwether” for how well firms are implementing the Consumer Duty, with the new regulation requiring advice to be outcome-based and avoid foreseeable harm.
Greer said: “While new initiatives such as investment pathways make it easier for unadvised savers to choose investment solutions aligned to their specific desires and drawdown objectives, they are no substitute for financial advice. Everyone’s financial make up is different as well as their financial objectives, and advice often helps those who live well below their means for much of their retirement unnecessarily by illustrating exactly how much they can afford to drawdown without fear of running out.
“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.”
Greer also urged the Government to look at other aspects of the pensions system, including the Money Purchase Annual Allowance, to see if they are achieving the desired outcome.
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