Image of glass reflection of RPC building.

Government drive for ‘Pensions Freedom’ leaving providers stuck between a rock and a hard place

Published on 22 June 2015

George Osborne’s announcement of an investigation into the barriers preventing consumers from taking advantage of the new ‘pensions freedom’ regime may leave providers struggling to balance the Treasury’s drive for flexibility with the Financial Conduct Authority's (FCA’s) prioritisation of consumer protection, warns Simon Laird, Partner at City law firm RPC.

The plans announced by the Chancellor include a consultation on how the pensions industry can speed up transfers from one pension scheme into another.

Simon Laird comments: "It is absolutely right that the Governmentand the FCA are pressing ahead to make sure that consumers are treated fairly over pensions.  However, if complete unfettered access to pensions savings has not been instantaneous, I suspect this is partly because there is a mismatch between the Government and Regulator's views on how much personal responsibility consumers should be expected to take."

"While the language from Ian Duncan Smith is very much about freeing consumers from ‘handcuffs’, the regulator’s track record has been to take a more paternalistic approach and expect financial services companies to do the same."

"The result is that if an investor insists on going ahead with accessing or switching a pensions product against a pensions provider or adviser’s warnings, the provider or adviser is at risk of exposure if the investor’s decision turns out to have been the wrong one.  This is regardless of whether there has been fault on behalf of the provider or adviser in the strict legal sense."

"The FCA has previously carried out extensive reviews of past pension business, and tried to force redress payments, even where, in our view, they have not taken all the necessary steps to establish that the firm was legally liable for the consumer’s decision."

"We're currently advising a number of clients in respect of the FCA’s Enhanced Transfer Value pensions review, and the issues there are typical of the challenges product providers and adviser firms face with pension freedoms." 

"Providers and advisers are stuck between the rock of the Treasury’s pressure, and the hard place of their past experience of the regulator’s approach to consumer responsibility.  As things stand, they are unlikely to be prepared to run the risk of being hung out to dry if a consumer’s own investment decisions go wrong."

"Until that mismatch is resolved, the Government's objectives with pension freedoms are unlikely to ever be fully realised.  There urgently needs to be meaningful guidance and reassurance from the FCA on this."