Steven Cameron, Pensions Director at Aegon, comments: “Increasing the FOS compensation limit will give extra protection to a small number individuals who are facing major losses but spells bad news for the many thousands more who are seeking advice on whether it is in their interests to transfer out of a defined benefit pension. With the FCA admitting firms could face a 140% increase in already very expensive Professional Indemnity cover, and predicting 1000 of the 2500 firms currently offering such DB transfer advice will stop doing so, this can only lead to a worsening of the advice gap.
“This goes against the central aim of FAMR, which was to close the advice gap and comes ahead of an effectiveness review of both RDR and FAMR scheduled for later this year.
“Since the RDR and FAMR were implemented, the need for and value of advice has continued to grow. The 2019 review offers a real opportunity not just to assess effectiveness against original aims, but to reflect on impacts of recent changes and how regulation can address future challenges for the benefit of consumers and advisers alike, including around DB transfers.”
Aegon’s top 6 recommendations to FCA for the forthcoming review of RDR and FAMR are:
• Prioritise addressing the advice gap for DB transfers, which is likely to get worse as PI insurers and firms react to the increased FOS compensation limits
• Consider not just progress against original review intentions, but seek to advance current and future priorities, allowing for recent developments
• Refocus on closing the ‘advice gap’ rather than further protections for those who don’t seek advice, for example when entering drawdown
• Introduce risk-based FSCS levies so those intermediaries undertaking higher risk activities such as advising on unregulated investments pay a greater share
• Merge Adviser Charging and the Pensions Advice Allowance, by allowing Adviser Charges to cover advice on wider retirement planning
• Offer more practical support for employers to facilitate advice in the workplace including better promotion of employer-paid advice up to £500 being exempt from ‘benefit in kind’ taxes.
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