FCA: risk warnings not required for pension pots under £10k

In a consultation paper published today, the FCA said that firms will still be required to give appropriate risk warnings.

Additionally, the FCA has made changes to its ‘certified high net worth investor’ and ‘restricted investor’ certification criteria. Lump sum pension withdrawals, that are not intended to serve as income in retirement, are now excluded from the HNWI income criteria.

The consultation paper also discussed whether commission should be capped or banned on non-advised sales of annuities, which the regulator said would immediately address concerns that customers may pay more for non-advised than advised sales.

However the regulator said that distribution would therefore need to be paid for in another way, meaning that consumers would be charged an arrangement fee for non- advised sales. This, it said, could have a "significant impact" on competition.

It said that other options, such as drawdown, would still carry commission. Therefore limiting any ban to annuities could distort competition between these potentially substitutable products. Firms might as a consequence be incentivised to promote drawdown over annuities with potential harmful impacts on consumers in the long term.

The FCA added:

"This would mean that, to avoid distorting competition, we would need to consider banning commission on a wider range of investment solutions. In addition, banning commission might not result in better-value annuities, particularly if providers replaced the commission spend with alternative marketing/distribution spend.

“We recognise that there may be benefits in exploring these outcomes in more detail and will assess the potential need for additional data collection to analyse these issues following the review of responses to this paper.”

Christopher Woolard, director of strategy and competition at the FCA, said:

“Pensions are of fundamental importance and it is vital that the market works well for consumers. Our proposals today are designed to ensure that consumers have access to products and services that are well governed and deliver value for money following the government’s pension reforms.

“We will continue to monitor the market as it evolves following the introduction of the government’s pension reforms to ensure that firms are helping consumers get the best outcome in retirement.”