Impact of new pension freedoms to be reviewed by City regulator

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A review into how well the new pension freedoms are working for consumers will be launched by the City regulator in the coming months.

The Financial Conduct Authority (FCA) plans to launch the retirement outcomes review at some point in the next six months.

The FCA also said it needs to consider any potential mis-selling risks that could arise from people being able to sell their retirement annuities for a lump sum from next year.

Launched a year ago on Wednesday, the freedoms allow people aged 55 and over to take their pension pot how they wish, subject to tax. They are no longer required to use the pot to buy a retirement annuity.

In its plan for 2016/17, the FCA said the review will consider the impact of the pension reforms on competition and switching in the market.

It said that with some people now releasing their pension pots as cash, these changes in behaviour "present different risks to the risks of selecting an annuity".

The plan said: "We will conduct work to help us understand how consumers react to 'wake-up packs', which encourage them to take action, and how they use and respond to the various annuity comparison tools.

"We will undertake work to ensure that consumers are able to make choices that are in their best interests given their circumstances."

From April 2017, people who already have an annuity will be able to sell it on in exchange for a lump sum.

The FCA's report said: "There are several risks we need to consider, for example, the risks of mis-selling and poor value for money for consumers, particularly those with small pension pots and the risk that our interventions undermine competition or stifle market development."

Recent research from Citizens Advice found that nearly nine in 10 people would fail to spot common warning signs of a pensions scam - such as the promise of unusually high investment returns and offers of "free financial advice".

The FCA said pensions are a priority for it for the coming financial year, given the fundamental recent changes to the market.

Its report said: "In some areas, such as pensions, Government policies are increasingly shifting responsibility for financial planning to individual consumers, which brings with it both opportunities and risks, such as the adequacy of consumers' long-term financial planning."

The regulator will also target resources to raise consumer awareness, disrupt scams and take enforcement action against unauthorised businesses.

The FCA also plans to consult on a planned cap on early pension exit charges. Parliament has given the FCA a duty to impose a cap on the charges amid fears that high charges could create a barrier for some people trying to access their pension savings.

It said: "We will be consulting on this to ensure that consumers are able to use their pension freedoms and transfer their pensions more freely without unnecessary barriers."