FCA publishes rules on retirement risk warnings

Published: 27/02/2015     Last Modified: 27/02/2015

New rules published by the Financial Conduct Authority (FCA) today will help to protect consumers wanting to access their pension savings from 6 April 2015 by requiring firms involved in the sale of retirement income products to give additional warnings tailored to them.

The 2014 Budget introduced new pension freedoms for consumers with defined contribution pension savings at retirement. In January, the FCA announced it would require firms to provide consumers with “risk warnings” based on an individual’s circumstances so that they can make an informed decision on their pension based on the benefits and risks involved.

Christopher Woolard, director of strategy and competition at the FCA said:

"The pension reforms give 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."

Firms are already required to provide risk warnings.  However these changes will require them to personalise those warnings to the individual and the choice they are making by asking a series of questions and actively engaging with the customer. The FCA’s rules achieve a fair balance between protecting consumers and addressing valid concerns from firms about their ability to comply from 6 April 2015.

The new personalised 'risk warnings' must now be given to customers when they contact a firm to access their pension savings. The information will support the guidance by the Government’s Pension Wise service. One of the key purposes is to encourage people who have chosen not to seek regulated advice, to consider their options carefully before making an irreversible decision.

Firms should consider a number of issues when designing appropriate risk warnings, for example:

  • the state of a consumer’s health
  • tax implications
  • the impact on means-tested benefits, and;
  • investment scams.

Firms will need to keep records to show that consumers have received relevant warnings and whether they have taken regulated advice or guidance from Pension Wise.

The FCA is introducing the rules without consultation. However, the regulator has confirmed that it will undertake a review of ‘at-retirement’ rules in the summer of 2015 and will consult at that time on whether any changes need to be made to the rules published today.

Notes to editors

  1. PS15/4 Retirement reforms and the guidance guarantee: retirement risk warnings
  2. Standards for the provision of pensions guidance by designated guidance providers: cost benefit analysis
  3. On the 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
  4. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
  5. Find out more information about the FCA.

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