In its business plan published today, the FCA comments on the need to cater for the needs of the ageing population who are likely to need to fund a long retirement, and then may also have to find funds for care fees at the end of their lives.
Kay Ingram, divisional director of LEBC Group, says:
“Unfortunately the FCA seems to believe that the Care Act will limit the cost of care per person to a cap of £72,000, after which all care costs will be met by the State. This is not the case and a detailed study of the provisions of the Care Act shows that in assessing the £72,000 private spending on care, it excludes a lot of the costs actually incurred. This means that many people may pay more than double the care cost cap, before the State and local authority step in to pick up the balance.
“All these factors are likely to mean that each person requiring care should budget for twice the care cap of £72,000 if they want to maintain choices about their care.
“If the Financial Services regulator does not understand the complexity of how the care cap is calculated, what hope have consumers, who do not have a regulated financial adviser to rely on, of understanding the need to fund for long term care beyond the headline £72,000?
“Anyone approaching retirement now would be well advised to invest in a long term financial plan which will help them make provision for their long term needs as well as immediate wants. Failure to plan at retirement for increasing costs in old age will result in tough choices later. By engaging a financial planner to review the longer term consequences of early retirement, making wrong decisions now can be avoided.”
Mark Soper, joint-founder of RetireEasy.co.uk, added that the FCA's review into the suitability of retirement advice could actually be detrimental to the industry.
The FCA said its business plan would place further focus on consumer outcomes for pensions and retirement income products following the reforms, including whether the sales practices of pension providers have improved, and how firms are helping consumers make the right choice in relation to their pension.
He said:
"Any IFA would be mad to advise their clients to cash-in their pension fund as the FCA will be reviewing the “suitability of advice” given and take retrospective action in 2016. For suitability to be appropriate, an IFA will need to demonstrate they took the client through all the possible options, which not only extends to pensions.
"For example, the IFA would naturally need to explain the relative merits of annuity purchase, phased or full drawdown and deferral.
"However, if the client needs the cash, the IFA will also need to explore alternative routes such as cashing in an ISA, savings policy or even taking out a loan. If this is all done, the advice will be compliant, but there is a huge time cost here and the IFA’s fee would need to reflect this."
Additionally, Prudential research released this morning showed that 45% of advisers are concerned that they could face increased regulatory and compliance issues as a result of the pension freedoms, particularly on the basis of advice given before the new rules were fully clarified.
Mark Soper went on to say that an FCA review can therefore actually create an advice gap for scammers to move in and fill, and that "IFAs need to be vigilant on more than one front".
