The Financial Conduct Authority (FCA) is to introduce additional protection to defined contribution (DC) pension scheme members ahead of April’s incoming reforms that will give members more flexibility around how to take their pension pot.
Under the new rules, which are aimed at protecting members who are keen to cash in their pension pots, pension providers will be required to ask employees about key aspects of the circumstances that relate to the decision they are making about their pension pot.
These include issues such as health and lifestyle choices or martial status.
Providers will also be required to give relevant risk warnings, such as warning of the tax implications of their decisions.
They must further highlight the availability of the government’s new Pension Wise scheme or regulated advice.
The rules will be introduced on a temporary basis from 6 April without consultation to provide additional protection to DC pension schemes.
Christopher Woolard, director of strategy and competition at the FCA, said: “The decisions [people] make about what to do with their pension pot are important and in some instances these choices are irreversible.
“We want to make sure that people have the help they need to make those choices.”
Jamie Smith-Thompson, managing director at pensions advisory firm Portal Financial, added: “This move will ensure anyone trying to remove money from their fund is made aware of tax implications and that their personal circumstances might dictate the most appropriate retirement solution.
“While someone may have plans to remove their whole fund to invest in property, they may soon discover that the tax implications and a health condition make an enhanced annuity more appropriate. We would hope that this intervention leads to a demand for professional advice.”