We must avoid history repeating itself
18 April 2017
15 March 2019
There has been a lot of talk in the press lately about the uptake in pension transfer activity, and the risk that this could potentially lead to the country's next mis-selling scandal.
The latest research shows more than 500,000 people have cashed in a total of £9.2 billion from their pension pots in the two years since pension freedom rules were launched, with home improvements, cars and holidays the three most common expenditure items.
Over the past couple of weeks I have spoken to a number of national newspaper personal finance journalists about the risks of cashing in a secure income, particularly given the recent rise in life expectancies and the extended period of time that people can expect to live in retirement.
With the prospects of market uncertainty and volatility on the horizon, the added perception of capital erosion may spark claims of mis-selling.
There has never been a more important time therefore for the profession to be more alert, robust and rigorous in managing understanding and expectations, coupled with clear risk warnings and documentation.
The latest Office of National Statistics (ONS) figures reveal that Britons now have a higher life expectancy than ever before. Men are living an average of eight years longer and women almost four years more than just 25 years ago, with life expectancies reaching 86 and 88 respectively.
I made it clear in my discussions with the consumer press that in many cases financial advisers are now typically and prudently anticipating life-spans of up to 100 years when preparing their planning forecasts, and additionally taking into consideration other factors such as the potential impact of care costs:
- The Express: Pensioners are warned over £9.2 billion retirement splurge
- Mail on Sunday: Start saving early to save yourself from a Grimm pension tale
- The Telegraph: Financial advisers assume 'new normal' where clients live to 100
At the same time however, we are seeing unprecedented levels of retirees accessing their pension pots to finance short term objectives such as holidays, cars and home improvements, with often little understanding or consideration of the longer term implications.
The FCA has raised the flag on pension transfers, reminding advisers earlier this year of what it expects when transfers are facilitated.
It is timely for all financial advisers to be reminded of their responsibilities with regard to pension transfers and I'd urge you to read our latest good practice guide, which offers clarification on some important transfer issues.
Financial Advice Market Review - one year on
Last month represented a significant milestone for the financial advice sector, having reached the one-year anniversary of the Financial Advice Market Review (FAMR) report.
To mark the event, the government and FCA released a progress report, updating the market on the status of the report's 28 recommendations.
It showed 10 recommendations were completed, 11 were "on track" and seven had consultations underway - an impressive achievement given the recent period of political instability.
We give due recognition and credit to the progress FAMR has made on increasing support for employers who want to facilitate workplace advice, incentivising consumer engagement with a financial adviser and establishing a clearer definition of advice for regulated firms.
These are practical steps in the right direction. But alone they will not have the impact required to truly address the advice gap and better protect the public's long-term best interests.
We will continue to work with the government and regulator in the months ahead, to ensure that together we achieve the critical reforms that the sector and consumers deserve.
On Friday, I will have the pleasure of hosting the newest group of PFS graduates at a ceremony to be hosted in our Great Hall in London.
We will welcome 433 new Chartered, Associate and Fellow's to our ranks, and I look forward to acknowledging and celebrating their success with family and friends who will also be present.
These occasions remind us all of the professional evolution that has taken place within the personal finance sector in recent years, and I congratulate all members of the society for the role you are playing in the evolution of the profession - Thank You!
This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.