Part eight of our twelve part series spotlighting the FCA's key priorities looks at pensions and retirement income where the FCA wants to ensure that the various products available support people to increase their financial provision for later life.

Read more on the specific activities the FCA will undertake in 2019/20 to ensure the pensions market meets the needs of its consumers.

The key priorities

The FCA has set out its key priorities for the pensions and retirement income sector over the next year and these include:

  • Addressing the remedies from the Retirement Outcomes Review (ROR);
  • Assessing competition in non-workplace pensions market;
  • Maintaining action on improving defined benefit transfers;
  • Focus on the joint priority work with The Pensions Regulator (TPR);
  • Proposals on independent Governance Committee (IGCs) effectiveness; and
  • Working with partners on the pensions dashboard.

ROR remedies

The ROR discovered that those drawing down their pensions often do not make the right and most prudent investment decision. One significant problem was a lack of engagement by the consumer in the process and the FCA now require better communication from firms to consumers before they begin drawing down their pensions. The FCA are due to release a policy statement shortly in July 2019 requiring firms to provide customers with a range of ‘investment pathways’ to assist consumers in choosing which option on drawdown best suits their retirement needs.

Non-workplace pensions

A non-workplace pension or personal pensions include a stakeholder pension or self-invested personal pensions (SIPP) for example and the FCA are looking at whether there is enough competition in the market and whether consumers need protecting.

The latest Financial Ombudsman Service (FOS) annual report published in May 2019 reveals that SIPP related complaints increased by 86% to 3,811 in the 2018/19 financial year. The FOS say the rise in SIPP complaints is the biggest contributor to an overall increase in pension complaints which were up 40% to 7,449 in the same period.

According to the ombudsman service, around 60% of the 3,811 SIPP complaints were about provider due diligence and as such, it is no surprise the FCA have set non-work pensions as a key priority for the coming year.

Defined benefit transfers

The FCA is considering a rule change, if appropriate, where firms are charging for pension transfer advice and a conflict of interest arises between the charging structure and the advice being provided. The FCA is consulting with the Work and Pensions Committee and will provide new proposals in the next month.

Joint pensions strategy between the FCA and TPR

Last October, the FCA and TPR, published a joint regulatory strategy document (the JRS) aimed at regulating the pensions and retirement income sector. The JRS follows a joint Call for Input released in March 2018. It sought input from everyone with an interest in the sector to contribute to the joint approach. The overarching aim of the JRS was to try and combat people having insufficient income or not having the income they expected in retirement.

The move towards non-advised drawdowns and DB to DC transfers has increased the risks that a significant number of people are not saving sufficiently to meet their needs in retirement. The four key issues for the JRS are:

  • People struggling to maximise their pension savings;
  • Money not being managed in line with savers' needs;
  • Pensions not being well looked after; and
  • People not being enabled to make good decisions.

The strategy and action plan had four clear objectives which included that pension and retirement income products support people to increase their financial provision for later life. This, it was hoped, could be achieved by the coordinated actions of Government, employers / employees and consumers. It is also hoped that pensions would be well-funded and invested appropriately and in the case of both DB and DC pensions, the funds need to be invested appropriately with a balance struck between investment returns and levels of risk with and increased focus on Environment, Social and Governance (ESG) factors in investment decisions. It was also intended that pensions be well-governed, well run and deliver value for money. And finally, it was hoped that people would be able to access helpful information, guidance and advice that enables them to make well-informed decisions.

Extension of IGC’s remit

IGCs review the level of funds within a workplace pension prior to that pension fund being accessed. The FCA are looking to extend the remit of the IGCs from merely assessing whether certain schemes offer value for money to potentially overseeing investment pathways for drawn down pensions. The FCA are also due to publish a policy statement (including new rules for IGCs) by the end of 2019 on how far pension funds ought to consider social impacts, specifically ESG issues, when making an investment.

Pensions dashboard

During the 2016 Budget, the government made a commitment that a Pensions Dashboards would be created by the pensions industry, enabling everyone to view details of all of their pensions together. The government has indicated that every provider will eventually move to sharing data with their customers this way. Government, regulators, and businesses in the pensions industry are all trying to make the Pensions Dashboards available online from 2019.

Commentary

The FCA use a number of indicators at its disposal, including reviewing the number of complaints received, to try to assess whether consumers are making unsuitable personal choices or obtaining unsuitable advice. Further, its intentions to try and simplify an often complex area are to be commended. That said, some of the initiatives may add to the confusion, including too much collaboration between the FCA and TPR diluting their distinct remits. It remains to be seen whether the above good intentions bear fruit.