19th December 2014
MPs have warned of another mis-selling scandal if the City watchdog does not put a ‘second line of defence’ in place for retirees ahead of the new freedoms.
From next year those age 55 and over will be able to access their entire pension pots as cash from next year but members of the Work & Pensions Committee said the Financial Conduct Authority (FCA) should put some barriers in place.
MPs said it should be mandatory for pension providers to ask questions about whether individuals are making the choice with their pension and whether the products they choose – such as drawdown or annuities – are suitable for their retirement needs.
In an evidence session with the FCA MPs Mike Thornton and Teresa Pearce said the FCA should force pension providers to quiz retirees on their health, tax status, debt and marital status before allowing them to take our retirement products.
However, FCA policy directors David Geale and Christopher Woolard said the introduction of the guidance guarantee – the free 30-minute guidance being offered to retirees – would help as insurers would ask retirees if they had taken guidance and if not, encourage them to do so.
Thornton said this ‘doesn’t even approach answering the problem’.
‘It is completely and utterly useless. If someone hasn’t taken guidance originally they are subsequently asked if they would like to take guidance; they will get exactly the same answer as before. No one will be asked the vital questions when they actually take the product out and sign the contract,’ he said.
Thornton added: ‘These questions should be asked in such a way that causes people to say “well, actually – have I though about ?”. It does not have to be advice, we just need to know they have seriously thought about it.’
He went on to say that if the pause before buying a product is not there ‘we will see mis-selling and in five years’ [the FCA] will be back here and we will be saying “we warned you this would happen but you didn’t do anything about it”.’
Thornton said: ‘To me this is absolutely vital that there is a second line of defence, we cannot wait and see on this.’
Pearce agreed with Thornton, pointing out the flaws and previous mis-selling scandals within pensions.
‘Given what we all know about the sale and duration of poor practice among pension providers, I cannot see why you would not introduce a conduct rule around the second line of defence,’ she said.
‘My understanding is that the FCA is there to protect the public, not to protect pension providers, yet it seems that you are happy to let people walk along a high wire and when they fall off you will say – “well, we told them to be careful” – why not have a safety net?’