By Huw Jones
LONDON (Reuters) - Britain's Financial Conduct Authority is launching a full-blown review of the multi-billion pound pension industry to ensure new freedoms to cash in savings pots do not lead to another mis-selling scandal.
Since April 2015, people in Britain over 55 years old have been allowed simply to cash in their pension pots, whereas in the past most would have had to use the savings to buy an annuity which pays a pension until death.
Then from April next year, people who have already bought annuities will be able to sell them on a new "secondary market".
"The ability to release pensions as cash heightens the risk of people being targeted by fraudsters," the FCA said in its 2016/17 financial year business plan published on Tuesday.
The watchdog, which has the power to change market structures and impose fines, said in its plan that it would launch a broad pensions market review and consider additional measures to protect consumers cashing in their savings pots.
The FCA has imposed record fines on banks for misconduct and mis-selling in the past and the root and branch pensions review will put the focus on insurance companies too.
The watchdog is already carrying out a review into whether annuity providers failed to give higher pension deals to customers likely to die early due to ill health, or smoking, a review that some believe will lead to compensation.
"Behind the scenes, they have been methodically stripping away the layers of paperwork and uncovering evidence of how the sales were made," said Tom McPhail, head of retirement policy at Hargreaves Lansdown (LON:HRGV), a funds supermarket.
"It appears likely that some providers are going to be called to account for the way they have treated their customers, which could in turn pave the way for compensation for mis-sold annuity investors," McPhail said.
The FCA also said in its plan that it would consult on a call from parliament to impose a cap on charges for getting out of pension plans.
"As the industry gets to grips with a large amount of change and disruption ... any clarity from the regulator to help narrow the advice gap and to enable robust automated models delivering good consumer outcomes to be developed with more confidence would be welcome," Lee Clarke, insurance regulation partner at PwC consultancy said.
The FCA will review independent governance committees set up by companies to oversee workplace pension policyholders.