Pension decumulation decisions around drawdown and annuities will be excluded from the FCA’s proposed simplified advice regime due to their complicated nature.
The regulator said decisions around pension decumulation were too complicated to be part of its simplified advice regime.
This is despite some in the industry wanting to see the scope of a simplified advice regime expanded to include products, such as annuities, uncrystallised funds pension lump sums, and flexi-access drawdown.
Last year the FCA proposed a form of simplified advice which was limited to investments into mainstream products within a
new stocks and shares Isa but the industry said this was too narrowly focused.
The FCA has said it now wants to explore a wider solution but it stated: “Drawdown decisions, for instance, may have income tax and inheritance tax planning implications, or complicated interactions with means tested benefits. So we propose that all pension decumulation decisions are excluded from simplified advice.”
This morning, the City watchdog set out three proposals for reforming the advice guidance boundary, including a simplified advice option.
It said a new form of simplified advice would make it easier for firms to provide affordable personal recommendations to clients with more straightforward needs and smaller sums to invest.
Product range and investment limit
As well as previously limiting simplified advice to a stocks and shares Isa, the FCA previously proposed limiting the investment limit to the value of the annual Isa subscription allowance, currently £20,000.
This was to exclude high-risk and potentially more complex investments.
But feedback from the industry said the product range was too narrow and the limit too low for people to take up simplified advice, which would then not make it feasible for firms to offer this service.
Therefore, the FCA is looking at expanding the range of wealth accumulation products so that simplified advice is available to a broader range of consumers and should increase its availability to those unable to access holistic financial advice.
The FCA is also looking at setting a cap of £85,000 as the investment limit for simplified advice.
The FCA said: “[This] represents the limit for FSCS protection for investment advice. This would be reviewed if the FSCS limit changed in the future. We invite comments on whether this is the correct place for the limit to be set, and any alternatives which might be more appropriate.”
The FCA warned that the limit must not be set too high otherwise it could see firms market simplified advice to consumers who may be more suited to holistic advice.
“This outcome would be contrary to our objective of support being made available to many more mass market consumers.”
amy.austin@ft.com
