The insurance and pensions industry is calling for a review of the rules covering financial advice, arguing that Brexit presents an opportunity to move away from EU standards.
The Association of British Insurers says that EU guidelines around what constitutes advice are far too restrictive and it has demanded a full review of the UK watchdog’s Handbook of rules and guidance.
The review by the Financial Conduct Authority “should reflect the post-Brexit regulatory landscape and the UK’s ability to make rules for its own market,” the ABI argued in a report published on Tuesday.
The ABI wants pensions and insurance companies to be able to give more guidance to their customers without it being classified as formal advice, which has to be given by qualified professionals. It says the current rules, created by both the EU and the FCA, make this difficult.
“Retirement decisions are very complex,” said Rob Yuille, head of retirement policy at the ABI. “Too many people at present are making them alone. There is more providers can do and have to do to help consumers make decisions.”
The call comes despite deep divisions within the insurance industry about whether the UK should stick with EU rules after Brexit.
Many life insurers want Britain to move away from Solvency II, the bloc’s capital rules. But the City of London’s specialist insurance sector, which is based in and around Lloyd’s of London, is keen to maintain access to EU markets and wants to stick closely to the current regime.
The review called for by the ABI would affect financial advice rather than capital rules, but campaigners warned against making major changes.
“For some time, we have warned that the financial services industry would try to reduce consumer protection standards post Brexit,” said Mick McAteer, co-director of the Financial Inclusion Centre, a not-for-profit think-tank. “Advocating for a post Brexit regime tailored to the UK domestic market could be used as a Trojan Horse to deliver this.”
Baroness Ros Altmann, a former pensions minister, said: “A conversation with a pension provider’s helpline cannot be a proper replacement for impartial independent guidance and advice.”
The ABI’s report highlighted problem areas emerging from major reforms in 2015 which gave over-55s full freedom to spend their pension cash as they wished.
Five years on from the so-called “pension freedoms’, the ABI report said 40 per cent of those making the most of the new flexibilities were withdrawing pension cash at an unsustainable annual rate of 8 per cent or more, which could put them at risk of running out of money in later life.
“The pension freedoms have revolutionised retirement finances, giving people greater flexibility with their pensions, including being able to take all or part of their pension pot as cash,” said Huw Evans, director-general of the ABI.
“But the changes have also placed much greater responsibility on savers to ensure that they make the retirement choices that are right for them. Further reforms and safeguards are needed.”
Over £30bn has been accessed from pension pots since 2015, with the latest figures showing that over 350,000 were fully withdrawn in 2018/9 alone. According to FCA data, nearly half of people who accessed their pension pots in 2018/19 did so without regulated advice or guidance.
The ABI also called on the government to implement other changes to make the retirement market safer for individuals. They include a requirement for schemes to provide a letter warning of the risks of transferring a defined benefit pension with a letter warning of the risks of this option.