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FSCP warns of emergence of ‘toxic’ products in retirement space
The chair of the Financial Services Consumer Panel (FSCP) has told MPs she expects the emergence of “toxic products” in the retirement sector following the announcement of pension freedoms in the Budget.
The prediction came when Sue Lewis was grilled by the House of Commons’ ad hoc pension schemes bill committee. She said the risk of product mis-selling in the space will be made worse by the emergence of new, potentially unsuitable products, especially for those with smaller pots.
The pension space was radically reformed in the Chancellor’s March Budget which will make it possible from next April for a wider audience to access the income drawdown space, eliminating the need for those with smaller pots to buy an annuity.
It also introduced a free and impartial guidance service for all people at retirement, to be delivered face-to-face across Citizens Advice Bureaux and via the telephone by The Pension Advisory Service (TPAS).
The Financial Ombudsman Service recorded an uptick in consumer complaints about annuities and income drawdown products since the Budget, October figures showed.
Lewis said: “We think [mis-selling] is a huge risk. I do think we’ve got a better regulator now who will be on the lookout if the wrong products are being sold to the wrong people.
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“[But] for small pots the overhead cost for drawdown starts to look expensive, you wonder what other products might emerge which [may not be the best products] for these people.”
Lewis told MPs an effective guidance guarantee process is vital to making the reforms work.
But so far, she said, it looks “quite a long way away” and “there’s a huge challenge to get this up and running by April”.
She added: “The Financial Conduct Authority (FCA) has issued some standards that were too principles-based. The experience needs to be exactly the same whether you ring up TPAS or see someone at CAB. The fact find should be consistent across channels.”