From 6 April to 7 May, nothing shall stand between an over-55 and their pension. That is the chief objective of the politicians with most to gain from a smooth launch of the new pension freedoms.
Yet the world of pensions is bound to become much less laissez-faire in the months and years after the general election.
Pensions minister Steve Webb’s original resistance to the ‘second line of defence’ on annuity sales is a case in point. Just a few days before the FCA’s Dear CEO letter mandated the second line of defence, he was quite open that he didn’t want a box-ticking approach getting in the way of people getting hold of their cash.
The way the current regulatory landscape is structured, you could be forgiven for thinking the Government would actually prefer it if people took the cash, feeling its short-term glow in their pockets and bank accounts – until the election, at least.
The FCA’s Dear CEO letter tells providers they can deliver the second line of defence without straying into advice, but adds that further rules will be published in due course (after the election). A clue to where these rules are likely to settle is in the FCA’s Retail Investment Advice Final Guidance 15/1 paper, published, coincidentally, on the same day as the Dear CEO letter. This sets out how any provider offering the sorts of nudges required to get a person to achieve anything like a sensible drawdown strategy will probably be classed as having given advice without a personal recommendation. Execution-only drawdown is not dead but its content will have to be so thin that people hoping to use it will end up walking away.
So while advice without a personal recommendation does not carry the regulatory obligations of full advice, nonetheless those offering it are on the hook with the FOS and the FSCS.
Providers wanting to target this potentially lucrative area must tell themselves: if I am on the hook for advice anyway, surely I should make it as good as possible. Others mulling FG15/1, which came out only a few weeks ago, may not want to go anywhere near this.
Should that happen, we could end up with thousands of retirees asking for drawdown, only to be told they can’t have it until they have received advice. Great for advisers, but there could be a lot of people wandering from pillar to post unable to complete their transaction.
Obviously we haven’t seen the new rules yet but it feels like DB-to-DC switches will only get more regulated, not less. Think about how long you spent on the phone the last time you swapped mortgage – a contract typically tying you in for a couple of years, with a relatively narrow range of potential downsides. Is the regulator likely to allow people to fix their entire retirement fortunes with a few minutes on a website plus a bit of telephone support?