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06 Apr 2016

FCA to review pension rule changes amid cut in state advice funding

The Financial Conduct Authority (FCA) has announced that a review of retirement rule changes will be held later in 2016, to assess the risks faced by UK pensioners. At the same time, funding for state-provided pensions advice has been cut by almost half.

The FCA has said it will focus on disrupting fraudulent schemes targeting older people and providing information for pensioners who are now free to spend their retirement funds as they wish, subject to tax charges.

According to the Telegraph, the regulator also plans to establish an advice unit to help financial services companies provide so-called “robo-advice”, replacing face-to-face financial guidance with computer-generated advice. This innovation is seen as a way to bring financial guidance to a wider range of people at a lower cost.

Steve Davies, partner at PwC said: “It is important that the regulatory model in this area is capable of keeping pace with this rate of change, providing meaningful and actionable regulatory guidance to existing firms which are in some cases hesitant to participate in this market due to previous compliance issues.”

Research by the FCA suggests that only 42% of pensioners buying an annuity in the final quarter of 2015 sought advice from a regulated adviser, rising to 68% for savers opting to withdraw funds from their pension pots.

According to Hargreaves Lansdown´s retirement policy head Tom McPhail, 503,527 people accessed their pension pot for the first time in the nine months since the new rules were introduced, compared to 375,000 in the year before the change.

Pensioners will have increased choice from April 2017, when a secondary market for annuities is due to be launched. This will enable retirees to cash in their annuities and use the proceeds more creatively.

Financial firms will be charged 42% less by the government for a “pensions guidance levy”, cutting funding for pensions advice from almost £40m to just over £20m. The Pension Wise advice body, established one year ago, will be merged with the Pensions Advisory Service and Money Advice Service around 2018.

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