27th February 2015
The City watchdog has announced new consumer protection ahead of the pension freedoms to warn retirees about the risks of accessing their pensions.
The new flexibility that allows access to pension funds as cash from April is being eagerly awaited but there are concerns that retirees will strip their savings from their pension and incur a number of problems. This include large tax bills, lose of generous guarantees on older pensions, and later down the line poverty in old age.
To try and combat some of these risks the Financial Conduct Authority will require companies selling retirement income products, such as life insurance companies and pension companies, to give additional risk warnings tailored to the consumer.
These warnings will be based on an individual’s circumstances so that they can make informed decisions on their pensions based on the benefits and the risks involved.
Life companies will be required to ask consumers a series of questions and ‘actively engage’ with them about their retirement choices.
Firms will have to ask questions about health, tax implications, impact on means-tested benefits and investment scams, and keep a record to show that consumers have received relevant warnings and whether they have received guidance from the new Pension Wise service.
Part of the risk warnings is to encourage people who have not spoken to Pension Wise to do so before making an irreversible decision.
Christopher Woolard, director of strategy and competition at the FCA, said: ‘The pension reforms given those people who are nearing retirement greater choice on what to do with their pension pots.
‘We want to ensure that they get the right information so that they can make informed decisions about their future.’