In January 2019 the FCA published PS19/1, its final rules and guidance on feedback received in relation to the Retirement Outcomes Review consultation CP18/17.
The FCA has published its policy statement PS19/1 titled the Retirement Outcomes Review: feedback on CP18/17 and its final rules and guidance (the 'Policy Statement').
The Policy Statement sets out changes the FCA hopes will protect consumers from poor outcomes, improve consumer engagement with retirement income decisions and promote competition following the introduction of the government’s pension freedoms in 2015, which aimed to provide flexibility in how and when consumers can access their pension savings. It is the latest development in a series of publications designed to assess how the retirement market is evolving following the introduction of the pension freedoms. It builds upon the FCA’s final report, published in June 2018 and CP18/17 Retirement Outcomes Review: Proposed changes to our rules and guidance. The key provisions of the Policy Statement are set out below.
'Wake-up packs', risk warnings and reminders
In CP18/17, the FCA consulted on changes to the requirements for retirees to receive wake-up packs. Most respondents to the consultation agreed with proposals that consumers should receive packs at additional trigger points, to include a pack at age 50, then again four to ten weeks before age 55, and then every 5 years until consumers have fully crystallised their pension pot (with flexibility for firms to provide packs sooner if doing so would benefit consumers). Currently, wake-up packs are typically sent four to six months before the consumer’s intended retirement date. Firms must now ensure that every consumer must receive at least one wake‑up pack before accessing their pension savings, which is designed to cover consumers who transfer from a non‑FCA regulated pension scheme to an FCA‑regulated scheme to access their pension savings.
The Policy Statement also provides that wake-up packs should include a single page summary with the following key essential information:
- the firm’s name
- the contribution amount
- the current fund value
- a statement for consumers to consider whether they are saving enough to meet their needs for retirement
- a statement about whether guarantees and other special features apply and how to find out further information
- the consumer’s intended or contractual retirement date
- a clear and prominent statement about the availability of pensions guidance
- the government logo and the logo of the organisation providing pensions guidance.
Firms will not be able to include marketing material alongside the wake-up pack or alongside reminder information about the wake-up pack.
The FCA is also proceeding with its proposal for risk warnings to be given to consumers alongside the wake-up pack, along with the publication of additional guidance to help firms prioritise the warnings.
In addition, the messaging in the reminder about the wake-up pack will have to be stronger and include a clear, prominent recommendation to access pensions guidance. The reminder will have to tell consumers about the open market options available to them, and the availability of guidance, currently provided by Pension Wise.
Annuity information prompts
CP18/17 set out proposals to improve the effectiveness of the information prompt, including for consumers who are potentially eligible to buy enhanced annuities. This included:
- requiring firms to ask consumers who express an interest in buying an annuity questions to decide whether they are potentially eligible to buy an enhanced annuity
- requiring firms to use the enhanced annuity information, where relevant, to generate a market-leading annuity quote
- amending the information requirements in the annuity comparison template to remove the additional narrative that refers to enhanced annuities.
Following feedback from industry participants, the FCA is proceeding with its proposals, with some amendment. The FCA will add guidance to COBS 19.9.6B G to set out a number of (non-exhaustive) health and lifestyle questions to be used by firms to assess the consumers eligibility for an enhanced annuity.
The FCA is also proceeding with its proposals relating to income-driven annuity quotes (where a consumer is looking for a particular level of income and wants to know how much that will cost) with just one technical amendment to the draft rules in CP18/17. Where firms are providing income‑driven quotes, they will have to use different information templates so that the information prompt clearly depicts the difference in purchase price rather than the income.
Clarifying the cost of drawdown products
In CP18/17, the FCA consulted on the changes to the information firms give consumers who are entering pension drawdown or taking an income for the first time, including to Key Features Illustrations (KFIs) and ongoing communications with clients. Following the FCA’s review of the feedback received in relation to KFIs, the KFI will have to:
- include key front page summary information, showing the ‘key facts’ logo
- include a one-year single charge figure in pounds and pence within the summary
- present information that takes inflation into account
- be given to consumers who are using an existing contract to move funds into drawdown or taking an income for the first time.
In addition, changes have been made so that communications to clients providing ongoing information:
- can no longer mention the option of getting advice, but instead include text on reviewing decisions and investments, and the need to consider a review of the pension decisions they have made
- are given to consumers who have not taken an income.
CP18/17 also included proposed new rules on ‘investment pathways’, which will enable non-advised consumers to achieve better outcomes by helping them choose the best way to invest their money in drawdown. In CP19/5 (which was published alongside PS19/1), the FCA’s proposed investment pathway remedy is aimed at consumers who, having received prompts to take advice or guidance, decide to access their pensions through drawdown without taking advice. CP19/5 includes:
- lengthy consideration as to what actions are needed to help non-advised consumers make a further decision on how to invest the funds that move into drawdown
- proposals requiring providers to ensure that consumers invest in cash only if they make an active decision to do so and that providers must give consumers initial and ongoing warnings about the likely impact of investing in cash on their long‑term income
- draft detailed disclosure rules requiring firms to tell consumers each year how much in charges they had actually paid in that period, in pounds and pence and inclusive of transaction costs.
The FCA is consulting on the proposals in CP19/5 until 5 April 2019 and a policy statement is expected in July.
The changes mentioned above in relation to wake-up packs, risk warnings, reminders and annuity information are due to come into force on 1 November 2019. Changes to clarifying the cost of drawdown products will come into force on 6 April 2020.