Herald a brave new world for consumer protection

Pension freedom and tighter regulations for mortgages and insurance. Sam Dunn on three days that may change finance

Whether it proves to be the consumer's champion or a bur- den on business, new regulation is about to flood the financial services industry.

The Financial Services Authority (FSA) rules over neither mortgages nor insurance at the moment, but that's going to change in the next three months. Whether you are taking out a home loan or an insurance policy to cover the repayments on that loan, the City watchdog will be there to protect you.

Mortgages will be regulated by the FSA from 31 October, which is also known as M-Day. General insurance follows on 14 January 2005 - I-Day. And in case they feel left out, pension rule changes will follow on 6 April 2006 (known as A-Day, "A" standing for action). The overall aim is to tighten the rules for financial advisers to give consumers greater protection. Here is a rundown of your new rights.

M-Day

A voluntary regime run by the Mortgage Code Compliance Board (MCCB) will be replaced by the new statutory regime from the end of October. At that point, mortgage brokers will have to be authorised by the FSA to carry on selling and promoting home loans, or they will be breaking the law.

The key change for consumers is the new "key facts illustration" (KFI) document they will receive, enabling them to compare the charges and costs on different loans.

Making a complaint will also be simpler: if you have a problem with a lender or broker, you can take your case to the Finan- cial Ombudsman Service (FOS).

Watch out if you are buying a property or remortgaging at the moment, and the deal is unlikely to be completed ahead of M-Day. If your broker is behind in its preparations to fall in with the new regulations, you might have to start again from scratch with another broker, should the worst come to the worst, or deal direct with the lender.

Check with your broker whether it is on track to gain FSA approval by the end of the month - or whether it applied by the 30 April deadline for guaranteed approval.

I-Day

As with mortgages, regulation for general insurance will pass from a voluntary code, overseen by the General Insurance Standards Council (GISC), to FSA rule. Selling insurance without authorisation will be illegal, although controversial exceptions include travel companies and warranties on electrical goods.

Again, consumers must be given a KFI leaflet with clear details of premiums and policy exclusions, so they can better compare products.

There is also a 14-day cooling-off period and, if brokers offer advice, they must sell a product that fits your needs. "If you are sold an unsuitable product, you have a means of redress via the FOS for the advice you were given," says Teresa Fritz, principal researcher for Which?, the magazine of the Consumers' Association.

Until January, you will still be covered by the GISC's own ombudsman service if you have a problem with a product sold to you. And if you are in the middle of a contested claim with a GISC-authorised firm, the case will be kept with that body rather than transferred to the FSA.

A-Day

While the regulatory regime for pensions will not change on 6 April 2006, the idea of A-Day is that the UK's tangled pension legislation will be simplified and tax regimes slimmed down.

The reforms will be especially important for those about to retire or considering whether to do so, says Elizabeth Gibling of independent financial adviser (IFA) Chase De Vere.

First, retiring post A-Day will offer considerable benefits to employees. Those with occupational schemes will be able to take 25 per cent of their fund in tax-free cash rather than a sum restricted by the rules governing individual pension schemes. The new regime will put occupational plans on a par with personal pensions.

Second, you and your employer will be able to invest more into your pension pot each year. Instead of restrictions based on age, length of service and salary, everybody will be able to contribute up to 100 per cent of their earnings - up to a £215,000 ceiling.

Savers with self-invested personal pensions (Sipps) will be able to invest in residential property - and possibly their own home, although rules haven't been finalised. Currently, only commercial property can be placed in a Sipp.

Finally, post A-Day, you will be allowed to take a tax-free cash lump sum from your pension fund and leave the rest of the pot untouched, rather than be forced to draw down income as is the case now.

But it could be in your interest to make a move before A-Day if you started an occupational pension - probably a final salary scheme - in the early 1980s or before. Under the current rules, some people are entitled to more than 25 per cent of the fund tax-free. "If they take their retirement before A-Day, they can hold on to this entitlement," says Ms Gibling.

Also, if you are a high earner and have amassed a pension pot of at least £700,000 so far, it could be worth registering your fund at A-Day with the Inland Revenue. This will let you cap the effect of a 55 per cent tax on any amount above the new "lifetime" limit on pension savings: £1.5m in 2006, increasing in steps to £1.8m in 2010.

As a rule, if you are in your 30s, 40s or early 50s and don't have a large pension pot, you won't need to register it before A-Day, adds Ms Gibling.