Financial firms have been warned not to disadvantage customers when giving advice about Chancellor George Osborne’s new Budget 2014 pension rules.
The Financial Conduct Authority, which polices financial advisers and pension providers, has issued a set of guidelines telling firms what they should tell consumers who want to cash in their pension lump sums under the new rules.
The regulator has clearly outlined how to give advice to consumers and warned that failing to stick to the rules could lead to sanctions or fines.
“Advisers and providers will clearly have to change the way they do business following the budget announcement,” said an FCA spokesman.
“They will have to reconsider the advice they might give about drawing a lump sum and investing in an annuity.”
Crushed annuity sales
The new rules allow defined contribution pension savers over 55 years old to draw small pot pensions of up to £10,000 as cash.
The FCA wants consumers to receive suitable advice about the implications of drawing their retirement savings as cash.
This includes pointing out potential loss of growth within the fund and that annuity rates may fall, leading them to lose retirement income.
“We expect advisers and providers to look at their advice and to draft new procedures to match the options now available to consumers,” said the spokesman.
The message is seen as a veiled warning to pension firms to closely follow the new rules even though they have crushed their profitable income from selling poor performing annuity contracts.
Time limits extended
Industry sources expect the annuity industry to shrink by around 75% as a result of the Budget changes and many leading financial firms have seen their share prices tumble on the stock market as a result.
In a separate announcement, the Treasury said people who have recently taken a tax-free lump sum from a defined contribution pension can have 18 months rather than six months to decide what h to do with the balance of their savings.
Exchequer secretary to the Treasury, David Gauke, said: “Decisions people have to make about their retirement savings are important and they may take some time to come to a conclusion that is right for them
“Extending the drawdown period will help those in the process of checking the markets make decisions without the stress of a short time limit.”
