The Financial Conduct Authority (FCA) today published a new consultation on how to help customers manage their retirement investments. Since so called “pensions freedoms” were introduced in 2015, people no longer have to use their pensions to buy an annuity (a guaranteed income) when they reach retirement. The idea behind this was to increase the freedom available to customers giving them the ability, for example, to withdraw more of their pension pot as a lump sum.
With greater freedom comes greater responsibility. The FCA has found a number of concerns for individuals who have chosen not to take professional advice on what to do with their pension pot:
- A third of customers have no knowledge about what they had chosen to invest in
- The levels of switching to other providers of drawdown products are low, potentially resulting in higher fees paid by customers
- A third of customers have chosen to hold their assets entirely in cash, at least half of whom are likely to be losing out from available investment growth
A number of remedies are now under consideration, including providing customers with “wake-up packs” from the age of 50, giving key information on the choices available to them and directing them to guidance available from Pension Wise. There is also a requirement for providers to display the highest annuity price on the open market next to their own price, as part of key information documents. The FCA is also consulting on a requirement to give customers a choice of “investment pathways” to make decision-making easier.
Phil Sneade, Manager in Frontier’s Financial Services team, said “The FCA’s consultation contains several potentially significant remedies. Most notable is their suggestion to require competitor prices to be disclosed in information packs, which would be particularly unpopular with industry. It is worth noting that similar FCA suggestions in the past have ultimately been avoided in other retail banking markets, so there is still be some way to go before this particular suggestion becomes a reality.”
Frontier advises on these and other regulatory and commercial issues in financial services.
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