DC experts cautious on FCA's 'second line of defence'

In a letter to pension provider chief executives last week, the FCA said providers will be required to enhance member protection by delivering relevant risk warnings to those not taking guidance under the guarantee.

Warnings must be delivered in direct and simple language and must also highlight to members the key role of government guidance and regulated advice when making important and irreversible decisions.

Mike Spink, DC pension consultant at Spence & Partners, said he supported the move, subject to further detail. “So much is resting on the new freedoms and the new regime… this is a shining chance to get things on the right footing and get the reputation of the industry to the right level,” he said.

Spink added conversations between providers and members would need to be carefully worded in order to protect providers from challenges further down the line and to ensure members did not interpret warnings as advice. “Clearly every provider that has to do this is going to keep careful recordings of these calls,” said Spink.

Richard Butcher, managing director at professional trustee company PTL, questioned how a second line of defence would help members who had initially refused guidance and were not actively seeking alternative advice.

“People who refuse to go to the guidance guarantee are either better advised elsewhere, ignorant or just don’t care. I’m not sure a second line of defence will help any of those classes.”

Discussion of the pension schemes bill in the House of Lords last week confirmed that similar protections would be extended to protect members in trust-based schemes.

Speaking before the House, Lord Newby said the Work and Pensions Committee is working with the Pensions Regulator to introduce similar measures.

David Robbins, senior consultant at Towers Watson, said he thought there may be more upheaval ahead for trust-based schemes in implementing additional protections. “The thinking is less well developed for trust-based schemes,” he said.

In another amendment, Lord Newby indicated that when a pension pot does not exceed £30,000 calculated on the basis of a single cash-equivalent transfer value, advice will not be mandatory for members.

Previously, this exemption would apply when the individual’s total pension wealth from all sources came to £30,000 or less. “I don’t think it’s a useful amendment,” said Butcher.

“Just saying to someone ‘well you’ve got a small fund so it doesn’t really matter’ I think is the wrong message. Even if it’s a small benefit it’s a small, good-quality benefit. I can’t see a good reason for anyone wanting to take a transfer,” he added.