Consultation response: FCA Pension reforms

Response by the Money Advice Trust

Date: January 2016

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Contents

Page 2 Contents

Page 3 Introduction / About the Money Advice Trust

Page 4 Introductory comment

Page 6 Responses to individual questions

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Introduction

About the Money Advice Trust The Money Advice Trust is a charity founded in 1991 to help people across the UK tackle their debts and manage their money wisely. The Trust’s main activities are giving advice, supporting advisers and improving the UK’s money and debt environment. We help approximately 1 million people per annum through our direct advice services and by supporting advisers through training, tools and information. We give advice to around 200,000 people every year through National Debtline and around 40,000 businesses through Business Debtline. We support advisers by providing training through Wiseradviser, innovation and infrastructure grants. We use the intelligence and insight gained from these activities to improve the UK’s money and debt environment by contributing to policy developments and public debate around these issues.

Public disclosure Please note that we consent to public disclosure of this response.

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Introductory comment We welcome this FCA consultation which looks at further reform to FCA rules following the pension freedoms that were put in place from April 2015. We welcome the acknowledgment in the paper that increased choice means significant risks for many consumers, including risks related to investments, increased charges and loss of income in retirement. We also welcome the commitment by the FCA to tackle consumer communications as the use of jargon and technical terms in this area makes it very difficult for consumers to understand the information they are given. It is vital that consumers are provided with clear and simple information that they can understand in order to make informed decisions about their options. We particularly note the proposals to amend the CONC rules and guidance in relation to pensions and debt advice and hope this will go some way to improve the current position. As you will be aware, organisations in the free debt advice sector are authorised by the FCA to offer debt advice to the public. Most of our sector will be authorised under the limited permissions regime. We have become very concerned as to what advice we can provide for clients with pension pots who are coming up to the age 55 from April 2015 onwards. We clearly do not want to stray into the realm of FCA regulated advice on financial products. We are concerned that providing advice in the course of debt counselling about cashing in a pension pot would risk enforcement action by the FCA. We do not specialise in broader matters relating to pensions that are the subject of this consultation. As a provider of debt advice rather than regulated financial advice on pensions, we have concentrated on responding to the questions in the consultation paper that relate specifically to debt advice. We have submitted a response to the HM Treasury consultation on pension transfers and early exit charges that closed in October 2015.1 We took the opportunity to make broader points in relation to pensions and debt advice. We have set these out as they relate to financial advice below.

Overall, we would like to see more clarity and better communication on the wider implications of the pension freedoms and how they affect debt advice.

We also seek clarification in relation to the boundary with regulated financial advice.

We are particularly concerned that there will be implications for advice providers in relation to their professional indemnity insurance, unless the boundaries are made much clearer and clear, straightforward guidance provided to protect debt advice agencies, their clients, and their clients’ pension funds.

1 http://www.moneyadvicetrust.org/SiteCollectionDocuments/Policy%20consultation%20responses/Unilateral%20responses/Money%20Advice%20Trust%20response%20to%20the%20HM%20Treasury%20pension%20transfers%20and%20early%20exit%20charges%20consultation%20paper.pdf

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We recognise that there may be changes to the scope of the advice that we can give as debt advisers as a result of the Financial Advice Market Review (FAMR) which is considering the regulatory and legal framework relating to the provision of financial advice to consumers. We hope that this review will provide the sector with clarity as to our role in relation to advice on pensions and debt advice. It would be helpful if the boundary was clarified. Further work would need to be done to explore whether there is a possibility of carving out a “safe harbour” for debt advisers to give more focussed advice to debt clients about their individual pension pot. This could enable debt advisers to provide fuller advice and guidance to those in debt with pensions that need to be taken into account when identifying suitable debt options. Currently clients can be left with no debt advice solution if they cannot afford independent financial advice, and have no source of free pension advice.

We would be grateful for any guidance that can be provided on these issues so that

we can ensure we provide high quality, clear and consistent debt advice to our clients. We need to ensure we do not run the risk of breaching any regulatory or professional indemnity constraints by straying into the provision of regulated financial advice.

We are also concerned that debt advisers will now be required to give advice to

people with pension pots that include suggesting that the pension be used to pay back creditors. This could be seen to undermine the public policy purpose of pension provision. If a pension pot is used to clear debts at age 55, is our sector vulnerable to complaints by clients in future when it becomes clear that they no longer have a pension to rely on as income in their old age?

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Responses to individual questions Question 22 Do you agree with our proposal to add guidance to make explicit the application of existing rules on debt collection in relation to pension savings and remind both debt collection and advice firms that advising on conversion or transfer of pension benefits is a regulated activity? We welcome these proposals as far as they relate to debt collection. We are pleased that the FCA has acknowledged our concerns on the potential impact of the pension reforms on people with problems repaying debts. We have raised our concerns that the rules need to be clear to make sure that creditors do not put pressure on people to access pension savings to repay their debts. We are pleased to see that the FCA believes that the rules are clear that creditors must not pressurise people to use their pension lump sums to clear debts and that the rules will now include explicit guidance to this effect under CONC 7. We would suggest that the FCA do more to actively highlight this in relevant trade media. We are interested to note that the FCA believes that the activities of both debt collection firms and advice providers giving advice on accessing pension savings is likely to fall under a regulated activity under existing Perimeter Guidance. We believe that this provision should prevent creditors collecting consumer credit debts from putting pressure on clients in existing debt management plans or other debt payment arrangements to cash in their pension pot and clear their outstanding debts by way of full and final settlement. We believe that these changes to the CONC rules help to clarify the advice we should be providing under these circumstances. However, it is of course not possible for the FCA to apply such rules to creditors collecting non-consumer credit debts. We would like to see further work done specifically in relation to how this guidance will work in practice. The forthcoming guidance should be embedded in industry guidance such as the Lending Code in future. The guidance in relation to pensions and debt should also be promoted more widely across the sector. We understand that the FCA proposed to amend CONC 8.3.2 in relation to debt management firms advising on using pension lump sums in full and final settlement of debts. This clarifies the position for debt advisers to some extent, in that it becomes clear that giving advice on accessing pension savings is likely to be a regulated activity. However, we are concerned that this will lead to debt advisers having to make a referral for pension advice for anyone considering using pension lump sums in any proposed debt option such as a full and final settlement or a lump-sum IVA. It is also unclear how far a debt adviser can go in discussion pension savings before this becomes “regulated” advice.

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As we have stated in our response to HM Treasury, we are concerned that debt advisers may feel obligated or required to refer clients to independent financial advisers for product-related advice but that many of our clients in debt and with smaller pension pots will not be able to afford to pay for this advice. We also understand that in some cases IFAs do not provide advice if a pension pot is worth less than a certain amount. We are very concerned that the absence of IFAs who are willing to advise those with small pension pots will increasingly become an issue. We are concerned that our clients will be in a position where they are unable to pay for advice from an IFA, and will be referred back to their debt adviser. However, as debt advisers we will not be in a position to provide regulated pensions advice either. We are also keen to avoid any possibility of a “referrals loop” whereby clients are sent to Pension Wise for pensions guidance and then referred back again for debt advice. We are further interested in the effects of auto-enrolment on available income to pay creditors. Under the scheme, consumers are required to make incremental percentage contributions that rise for a set number of years. We would not expect creditors to argue that such contributions should not be allowed in a financial statement as the amount being paid reduces the amount available to creditors to pay back the amount owed to them. However, we would welcome the FCA view on this aspect of the debate. In conclusion, we would hope that the FCA will undertake to be more proactive in this area. We feel that many debt advisers are confused about the regulatory boundaries and would welcome further guidance. We appreciate the further clarity provided by this expansion of the CONC rules, but we do not always find it helpful for the FCA to rely simply upon a technical response that refers to the CONC rules as explanation.

For more information on our response, please contact: Meg van Rooyen, Policy Manager meg.vanrooyen@moneyadvicetrust.org

0121 410 6260

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The Money Advice Trust 21 Garlick Hill London EC4V 2AU Tel: 020 7489 7796 Fax: 020 7489 7704 Email: info@moneyadvicetrust.org www.moneyadvicetrust.org