Pension Reforms – FCA Rule Changes to Protect Fools

This blog gives you the latest topical news plus some informal comments on them from ShareSoc’s directors and other contributors. These are the personal comments of the authors and not necessarily the considered views of ShareSoc. The writers may hold shares in the companies mentioned. You can add your own comments on the blog posts, but note that ShareSoc reserves the right to remove or edit comments where they are inappropriate or defamatory.

The Financial Conduct Authority (FCA) is concerned that many people are taking cash out of their pension pots and investing it in risky propositions or blowing it without taking suitable advice. They have launched a new public consultation therefore on rule book changes under the title “Pension reforms – proposed changes to our rules and guidance”. They must consider it urgent as we only have to the end of October to respond.

One particular change that might affect our readers is that in future the definition of High Net Worth and Restricted Investor Individuals (HNWI and RI) will exclude cash withdrawn from pensions even where it is not intended to serve as income.

What’s a High Net Worth Individual? Basically it’s people who have to be certified to invest in such risky propositions as unlisted companies (i.e. those that are not readily realisable) and who meet one of the following criteria:

– Those with an annual income of £100,000 or more; or

– Those with net investable assets (excluding primary residence and pensions) of more than £250,000.

Restricted Investors are those who certify they will not invest more than 10% of their assets in non-readily realisable securities. How far investors will need to look back is not clear. For example, they might have withdrawn cash from their pension ten years earlier.

They are also considering changes that affect commission charges on annuity sales and a number of other minor changes in the Rule Book followed by financial advisors.

Although the changes may not affect many people, and is the usual attempt to stop fools and their money from being easily parted, anyone concerned should respond to the consultation. Send your comments to ShareSoc also.

Roger Lawson

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