Asked by the Treasury select committee whether it was clear to the FCA what George Osborne had been referring to in his Budget speech last month, when he guaranteed retirees the right to free advice, FCA director of policy, risk and research Christopher Woolard said he had definitely meant guidance.

He said: “The word advice with a lower case a is used very commmonly in the financial services industry.

“The thing we are working on is guidance. We are absolutely clear about that. We are not asked to put full independent financial advice in front of everybody.”

Asked by Labour MP Pat McFadden whether the FCA thought consumers would likely get confused by the terms, Woolard said: “We need to make sure consumers know it is guidance [they are receiving] and if they need full regulated protection they need to go down the advice route.”

Woolard said the FCA has been addressing the issues of regulated advice and execution-only for some time.

He said he believes consumers understand what the two terms mean but admitted the space in the middle was still “murky”. The annuities debate brings that space into focus, he said.

Asked whether consumers had the right to complain after receiving guidance at retirement under the new scheme, FCA head of savings, investments and distribution David Geale said with guidance – as opposed to advice – consumers were generally responsible for their own decisions.

However, he said the suitability test will lie in whether “the guidance will not be leading people into a specific product”. “The liability there is if a firm has misled people, but consumers would take responsibility for their decisions,” he said.

He said the FCA had not yet figured out the likely true cost of the scheme but said the £20m contribution to setting the scheme up, announced by the Chancellor,was “seed money to start the process”.

Advisers responded to Osborne’s Budget announcements saying they were “nervous” about how the ‘right to advice’ promise would play out in practice.

The Institute of Financial Planning (IFP) warned the promise could inadvertently spark a wave of mis-selling if the ‘advice’ is given by those not suitably qualified and regulated.