The City watchdog is taking action to stop people draining their pension pots to fund risky investments intended for “sophisticated”, wealthier investors.
The Financial Conduct Authority has warned that new pension freedoms, which came into force in April, mean some retail investors can use their pension funds to self-certify themselves as a sophisticated investor. “The ability to access significant amounts of cash could expose them to certain, potentially inappropriate, high risk and complex, investments from which they would previously have been shielded by restrictions in our rules,” said the FCA.
The FCA said it would tackle the risks by altering the criteria for “certified high net worth investors” and “restricted investors”. Changes floated by the regulator would see lump-sum pension withdrawals “expressly excluded” from what counts as income for the high net worth test. Money released from pensions pots is also excluded.
The measures were floated as the regulator looked to update its rules following the introduction of pension freedoms, which have changed the way savers are withdrawing their retirement savings. “Following the biggest changes to private pensions for a generation, the retirement income market has adapted well but we must ensure that customers are protected and can get the best outcome for their retirement,” said the Association of British Insurers, which represents pension providers. “We are pleased that the FCA is proposing rule changes to suit the new environment, and bring in additional clarity which the ABI has called for.”
One of the plans floated by the FCA is the introduction of restrictions on commission charged by brokers selling annuities without advice.
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