- Bad advice led to unnecessary costs and taxes in some cases, according to FCA
The City Watchdog has accused pension consultancy firms of ‘not even getting the basics right’ in a damning report which found some were putting their clients’ futures at risk.
The Financial Conduct Authority (FCA) has written to CEOs asking them to review and improve pension advice services.
It says some are failing to provide the right information to customers so they can make informed decisions about their future, and have made mistakes in basic calculations of future earnings.
The FCA said some people receiving advice would not be able to take steps to limit any losses, such as returning to work to top up their income.
In extreme cases, poor advice has led to customers losing valuable guarantees and incurring unnecessary costs. Some customers were not even accurately informed about the tax bracket they would end up in.
Back to basics: The FCA has written to top executives asking them to review and improve pension income advisory services
The regulator said not all companies were effectively considering the sustainability of revenue extraction.”
It wants companies to take into account the current and future income needs of their customers after retirement and tighten their administration.
Poor risk profiling also caused some customers to take on more risk than necessary and suffer a permanent drop in revenue that they could not cope with, the FCA said.
The FCA is also concerned about the depth of the ‘fact-finding’ on customers, which provides tailored and appropriate pension advice.
It said: ‘We had particular concerns about the appropriateness of the advice given in seven files.
“The issues we identified include loss of warranties and features, fines and unnecessary fees or taxes. Some customers also did not receive information about relevant options.’
Tax matters: The FCA said the tax implications of any advice should be clearly outlined
In some cases the FCA came to light, vulnerable customers were not identified and an analysis of the individual’s spending was ‘not recorded or completed’.
If a customer’s expenses were not analyzed, it meant that their minimum income needs or how much discretionary income they had were not clear.
In other cases, the FCA said some firms were not taking people’s wider financial circumstances into account. It said the impact of the state pension and all pension pots was sometimes overlooked, as was the investigation into possible future capital erosion.
The FCA said the tax implications of any advice should be clearly outlined.
Using an example they came across, the FCA said: ‘The customer wanted to access an additional amount of money for a specific need. The file showed that all income of the customer and his partner had been registered.
‘Discussions about taxes referred to a 20 percent tax deduction, but did not make clear that the lump sum would push the customer into the higher tax threshold.’
Sarah Pritchard, executive director of markets and international at the FCA, said some companies are making a real difference to customers, adding: ‘Others aren’t even getting the basics right, putting customers’ futures at risk.’
In a letter to bosses, Lucy Castledine, director of consumer investment at the FCA, wrote: ‘Some firms may not be meeting the needs of their customers, potentially leading to poor outcomes.’
Castledine said advice on pension income would remain “an ongoing focus” for the FCA.
A review of responses from a thousand companies praised some advisers but said others failed to consider sustainable income for retirement.
Rebecca O’Connor of pension company PensionBee said: ‘If they’re not going to help you be better off than you would otherwise be, what are you paying for?
‘One of the moments in people’s lives when an independent advisor really has to shine is the moment when you are about to retire.’