Second Line of Defence – Risk warnings
In addition to the above, the Financial Conduct Authority has introduced a second line of defence to protect consumers. From April 2015 firms operating personal pensions, stakeholder pensions, selling pension decumulation products or facilitating the access of pension savings on an execution-only basis, must comply with the rules. These affect all consumers who have contract-based or occupational trust-based DC pension funds.
Firms are required to give appropriate retirement risk warnings to consumers accessing their pension savings. Firms must ask the consumer relevant questions, based on how the consumer wants to access their pension savings, to determine whether risk factors are present. If they are, risk warnings must be given.
The retirement risk warnings must be given to the consumer regardless of whether they have already received guidance from Pension Wise or taken regulated advice.
"These warnings may include setting out options the consumer has, such as shopping around. FCA states "We think that these retirement risk warnings can be given without providing regulated advice; we are not requiring firms to tell consumers what to do or implying that the consumer's decision will be wrong. We are simply requiring firms to ensure the consumer is aware of the risks of the course of action they are seeking to take." (FCA Policy Statement 15/4 - issued 27/02/15).
Firms will be required to personalise the warnings to the individual’s circumstances and the choice they are making, by asking a series of questions and actively engaging with the customer (rather than by reading out a scripted statement). Areas that need to be covered include:
The following represents core expectations based on how consumers access their pension savings.