Download the FCA factsheet for advisers on Pension reforms and insistent clients.
Obviously the availability of a cash lump sum to spend as they like is extremely attractive to the majority of pension clients. Some of them need it to pay off debt or finance specific purchases, and some just want it "because it's their money".
Either way, anything that stops clients accessing their money is seen as an unnecessary barrier and someone must be blamed.
Top of the list for taking the flack are pension providers, closely followed by "expensive" advisers. This article looks at the true barriers and the reasons behind them.
Plus we take a look at the new FCA guidance for advisers too.
There are indeed some providers who have chosen not to offer the new options to take cash or flexible income, and at least one has confirmed it would like to but hasn't been able to do it in time.
However most providers such as Royal London who are active in the pension market have been able to make the options available within the relatively short timescale allowed, albeit not necessarily from every contract .
The truth is that providers are not required to offer these freedoms at all. The legislation is permissive, not prescriptive. So if the government feels they are "dragging their heels" over it then they will need to take a different stance.
There are also accusations that providers are using advisers as an excuse not to pay out money.
The difficulty here is that there is legislation in place but it lacks clarity and has - up until now - been interpreted differently by different providers.
What is clear is that any client with over £30K in a pension plan which includes safeguarded benefits MUST seek advice before they take their money out of the plan. This has already led to a number of policyholders seeking advisers who will simply "rubber stamp" their decision to take their money.
What is less clear is what happens when the fund is smaller than £30K. Royal London has always strongly recommended taking advice when accessing pension benefits, and we ensure that every client is provided with the details of the adviser we have on record for them.
We have, however, also taken the view that it is the client's money after all. So if they insist on withdrawing their money without, or in contradiction of advice, we will pay out. Some other providers have taken a different position and have insisted on advice for all clients. This is a provider-specific decision.
Then we have the situation when the client has taken advice but the adviser's recommendation is not to take their money...
Until now the FCA has refused to recognise the concept of an "insistent client". However the rising numbers of consumers wanting to access their pension, together with pressure from the industry, has led to the publication of FCA factsheet 035.
This factsheet outlines the steps an adviser should take if their client insists on going against their advice.
As well as these pointers, the factsheet contains examples of good and bad practice that they have already seen and commented on. This is a must-read for advisers.
Despite this welcome guidance from the regulator, many advisers remain concerned that not everyone will view it consistently. In particular it would be welcome if PI Insurers and the Financial Ombudsman Service would provide clarity around how they intend to deal with any future claims.
Advisers will want to be assured that their clients take full responsibility for their actions where it is contrary to their professional recommendation, even if the adviser then assists the clients to transact.
One thing that would help is an industry-standard disclaimer which clients could sign stating something similar to this:
But maybe that's just too sensible.
Read the FCA Factsheet 035: Pension reforms and insistent clients in full. This factsheet provides a helpful reminder of the FCA position on insistent clients, given the pension reforms introduced in April 2015.
Fiona joined the life and pensions industry in 1989. She is a Fellow of the Personal Finance Society, an Associate of the Chartered Insurance Institute and is currently Vice-President of The Insurance Society of Edinburgh. Fiona specialises in the areas of at retirement planning and pensions and divorce.