George Osborne’s unveiling of pension freedoms was a genuine “WTF” moment for the industry.
Unlike most policy changes, which are floated past relevant parties and often intentionally leaked ahead of the budget, this one seemed to appear out of the blue.
There had been grumblings for years that annuities weren’t providing value for money and there would have been little argument against reform back in 2014/15.
But changes that would normally have taken years, through a seemingly endless stream of consultations, happened in very short order.
Backed into a corner, the pensions industry had little choice but to absorb the shock, figure out what pension freedoms meant in practice and make them available to consumers.
But I’ve long suspected that the changes the Financial Conduct Authority has made in the years since have been a way of trying to quietly shut pension freedoms down.
Osborne threw open the barn doors and the horses bolted. The FCA can’t exactly round them all up and put them back.
But what if their new environment is made more challenging and less appealing?
Shifting fenceposts
I would very much have liked to be a fly on the wall at the UK financial watchdog when pension freedoms were announced.
It is the responsibility of the Financial Conduct Authority (FCA) to police the industry and protect consumers.
But I’ve lost count of the number of stories I’ve written about scams, lost pension pots and esoteric investment opportunities that go up in smoke.
So, it’s no wonder that the regulator has tried to make sure people are using their new freedoms wisely and that firms are only recommending transfer where appropriate.
Putting the £30,000 ($38,704, €32,959) limit in place meant smaller pots could be accessed without advice, which would likely not have much impact on a person’s overall retirement pot.
Sensible, right?
The Pensions Regulator then declared that the default outcome to pension transfer requests should be that it is not in the best interest of the client.
Okay… I suppose that makes sense. I mean, a lot of people were offered high transfer values and probably felt like withdrawing their money was the best option – even if they didn’t have a plan about what to do with the money.
Past advice then came back to haunt some firms, resulting in a not-insignificant number going bust, leaving those left in the industry to pick up the compenstaion tab through higher levies.
The remaining players have also found it prohibitively expensive to get professional indemnity (PI) cover, which has forced some firms to refuse clients and driven others out of the market altogether.
While PI insurance prices do not fall under the remit of the FCA, the watchdog has made it pretty clear that it views pension transfers as high risk and has laid out its expectations with regard to the cover firms must have.
And if there is one thing insurers do not like, it is risk. It was inevitable that they would start to become wary and hike costs.
All of this has combined to make it more difficult for people to find advisers who would sign off on transfers over £30,000.
Not to mention those living overseas who now need two advisers to process the transfer – one in the UK and one in their country of residence.
The latest changes include the banning of contingent charging and the introduction of ‘abriged’ advice. Time will tell how those developments play out.
Misnomer?
I’m not suggesting that the FCA has had a masterplan and has been moving pieces around a chessboard, trying to choke pension freedoms.
But the number of hurdles that now lie between a consumer and the pension freedoms really does beg the question of whether they can still be called ‘freedoms’.
Please let me know your thoughts in the comments box below.
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