The FCA has stated that ‘improving outcomes’ in the pension market is a critical part, of their work on consumer investments. Their focus is on ensuring consumers have the right level of advice and guidance to help them make informed pensions decisions.

All relevant changes required to firms’ systems must be implemented by 1^st June 2022.

PS21/21 – Who does this affect?

The policy statement primarily affects all pensions providers, including operators of self-invested personal pensions, but will also be relevant to other parties including:

• Individuals and firms providing advice and information in this area
• Distributors of retirement income products
• Trade bodies representing financial services firms
• Consumer representative bodies
• Organisations with a particular interest in retirement
• Individual consumers

Pension Wise guidance and the ‘stronger nudge’

Recognising that consumers have a great flexibility on deciding when and how to access their defined contribution (DC) pension savings, the Government set up Pension Wise as one source of free guidance for consumers. Currently, only a small proportion of consumers (14%) accessing their pension pot for the first time have used this guidance, which is a cause of concern for the FCA. Therefore, in the paper, the FCA is introducing targeted measures and final rules to increase Pension Wise take-up at the point of accessing DC savings, to help consumers choose the right pension guidance and support at the right time.

What do Firms need to do?

The FCA requires that, when a consumer has decided how they wish to access their pension savings, or to transfer rights to another pension provider for purposes of accessing their pension savings, pension providers (in the case of a pension transfer, the firm to whom the consumer intends to transfer their pension rights) must:

– Refer the consumer to Pension Wise guidance and explain its nature and purpose;

– Explain that the consumer can take regulated advice albeit that this will be at the consumer’s own expense; and

– Encourage the consumer to receive pensions guidance by offering to book a Pension Wise guidance appointment for the consumer or provide sufficient      information for a consumer to make an appointment on their own

This is also known as “Step 1”. Firms are not permitted to progress to “Step 2” (determination of relevant risk factors and provision of risk warnings) until they receive confirmation from the consumer that they have received guidance or advice or that they have opted out of receiving the guidance.

Following this initial step, if the consumer failed to attend the appointment or book their appointment, the firm must repeat the process in Step 1.

How can Complyport help?

Complyport can provide assurance over current or historical standards and liabilities.

We offer a pre or post sale review of the advice given to a client to transfer (or not to transfer) pension benefits to help to ensure that your advisers are providing the best advice possible to your clients. We will use our deep knowledge and experience to ensure that your current standards meet the rules, guidance and expectations of both the FCA and FOS and that they also represent good business practice.

We can also provide you with assurance over historical advice standards by undertaking a sample review of past business. This can help with any FCA requests or communications, PI insurance renewals or can simply provide comfort over potential liabilities that you have or may have inherited through acquisition.

Our Pension Review team brings over 70 years of combined consulting experience and has reviewed over 15,000 DB Pension Transfer and Pension Switching files across more than 25 clients,

About Complyport

Complyport is the City’s market leading consulting firm supporting the UK financial services industry for over 20 years. We specialise in providing Governance, Risk and Compliance services to support the regulated financial services industry to raise standards and thrive.

Complyport advises and assists firms to become authorised and to comply with the rules and requirements of regulators on an ongoing basis. Our vision is to be there for our clients every step of the way, helping them change, grow, and excel through expertise, insight, and innovation, and in so doing to become our clients’ most valued supplier and trusted advisor.

We have successfully assisted over 1000 firms to become authorised with the FCA and EU and are providing regulatory support to over 600 regulated firms on an ongoing basis globally. With presence in the UK and EU, as well as via our Associates Network, Complyport can assist firms across multiple jurisdictions.

Complyport’s multidisciplinary consultants possess deep expertise in their field, having acted in FCA skilled person reviews, as expert witnesses in legal cases and as expert investigators for firms or their legal advisers.

Day to day, we conduct audits and reviews of a firm’s products, processes, policies, and procedures to identify scope for business, to determine the impact of regulatory developments and to verify compliance with local regulations. Our clients tell us we live our values; we are driven, agile and collaborative.

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What is the issue?

The FCA has issued the results of its recent work on the standards of pension transfer advice and has concluded that in less than 50% of cases reviewed was the advice given suitable.  The levels of unclear (23%) and unsuitable (29%) were up on the previous supervisory exercise undertaken by the FCA and the regulatory has hinted at dire consequences for firms that do not abide by the rules and achieve higher levels of suitable advice.

The target of this latest review was focussed and may not be fully reflective of the overall advisory standards in the industry but it does serve as a warning to firms to ensure that their business models and advice processes are fit for purpose and keep up with regulatory developments.

What should firms be doing now?

All firms active in pension transfers should be considering reviewing their business to ensure that the model does not lean towards the provision of unsuitable advice.  Governance arrangements should be checked and the advisory process examined to ensure that no systemic issues exist.  It may also be necessary to sample review past cases to establish if there is a historical problem and upgrade quality control processes provide assurance that future standards are acceptable.  This is particularly pertinent given the forthcoming SM&CR regime where senior management will be directly accountable for the conduct risk standards in the business.

How can Complyport help?

We have extensive experience of reviewing systems and controls and of assessing the suitability of client advice, both on a past review and ongoing basis.  We are skilled in assessing the standards of pension transfers and can provide assurance on the standards firms are achieving and provide assistance to resolve any weaknesses identified.

If you would like to discuss how we can help you, please contact Simon Chapman – Simon.Chapman@complyport.co.uk

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The ScamSmart campaign is targeted at pension holders between 45 and 65 years of age. In a recent poll, this segment of the population has been seen to be most at risk from fraudsters looking to defraud individuals out of their pensions. A recent poll, commissioned by the regulators, has revealed that almost a third (32%) of pension holders between the ages of 45 and 65 would not know how to check whether they are speaking with a legitimate pension adviser or provider.

Unfortunately, it is believed that only a minority of pension scams are ever even reported.

Mark Steward, Executive Director of Market Oversight at the FCA said, “The size of individual pension pots makes pension savings an attractive target for fraudsters. That’s why we’re urging anyone who is thinking about transferring their pension to check who they are dealing with and only use firms authorised by the FCA. Pension scams can cause victims significant harm – both financially and mentally. If you are ever in doubt about a pension offer, visit the ScamSmart website.”

What do pension scams look like?

Typically, pension scams are run by highly sophisticated scammers who lure individuals into transferring their pensions into fraudulent schemes. On average, it is estimated that pension scammers steal around £91,000 per victim, making the scams extremely lucrative. For the victims of these scams, they lose their savings and are often left facing retirement with limited to no income.

One of the most common tactics is to offer a ‘free pension review.’ A study revealed that one in eight people aged 45 to 65 said they would trust an offer of a ‘free pension review’ from someone claiming to be a pension adviser. As it stands, the most common method of scammers reaching their targets is via cold calling.

Cold calling is not the only way scammers get in contact with their victims. Other tactics include:

• Unexpected contact about your pension post or email;
• Promises of guaranteed high returns and downplaying the risks;
• Offering unusual or overseas investments that aren’t regulated by the FCA e.g. overseas hotels or forestry investments etc;
• Putting people under pressure to make a quick decision, for example with time-limited offers or sending a courier round with paperwork to sign; and
• Claiming to be able to unlock money from an individual’s pension. This is normally only possible from age 55 onwards.

Scammers are usually hard to pin down as being fraudulent by those un-trained to do so. The majority mimic salespeople, building trust with their victims to try and influence their behaviour.

The “Directory”

To enable individuals to verify they are dealing with an appropriately approved adviser, the FCA plans to introduce an enhanced version of its existing FS Register (also known as the FCA Register) entitled the ‘Directory’.  The Directory is planned to include not only names and locations of those approved for the customer facing function but also their qualifications and any relevant supporting information, including restrictions on the regulated activities they are able to undertake.  In addition to the ScamSmart website, this should aid individuals to ensure the person they are speaking with is both appropriately qualified and approved by the FCA.

You can read more about the CP-18-19 Directory or send us an email or give us a call.

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The FCA’s paper contains proposals designed to ensure that the pensions market works well for consumers, including new requirements to help consumers shop around, ensuring they have the right information to make informed decisions and to be able to understand the remuneration arrangements for the non-advised purchase of annuities.

The paper sets out expectations about how existing rules and guidance operate in the new environment, providing illustrative examples. It makes proposals for rule changes and asks for views from the industry and consumer groups.

Key proposals include:

• Rules and guidance to ensure that consumers receive timely, relevant and adequate information to encourage the exploration of the full range of options for accessing pension savings and enable informed decision-making;
• New rules on providing illustrations to members wishing to access pensions flexibly including guidance to set out the type of ongoing information provided when accessing pension savings while remaining invested;
• To remove the requirement for a firm to go through the question and answer process of the rules when a consumer has a pension pot of £10,000 or less and where there are no safeguarded benefits;
• To add guidance to make explicit the application of existing rules in the context of pension reforms, particularly in relation to debt collection and debt advice;
• Restrictions on the promotion and distribution of high risk investments and amendments to the FCA’s definition of certified high new worth investor (HNWI) and restricted investor (RI).

The FCA has also asked for views on other areas where further action could be taken including the remuneration for arranging the sale of non-advised annuities, reminding firms of their responsibilities to ensure lifestyling strategies remain appropriate and possible changes to the product disclosure regime.

The full FCA paper can be found here

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