The Financial Conduct Authority (FCA) has today (30 July 2019) published a policy statement confirming measures to improve informed decision-making around pension saving, in order to boost consumers’ retirement outcomes.
The measures, due to come into force from 1 August 2020, are a result of the FCA’s Retirement outcomes review, which investigated how consumers and providers had reacted to the pension freedoms introduced in April 2015.
The final report relating to this work was published in June 2018. This was followed by two consultation periods, in order to gather feedback on the proposed remedies, which received 62 responses. An initial policy statement was published in January 2019, containing measures that will come into force from 6 April 2020; this month’s policy statement is the second and concluding document of the FCA’s rule-making phase.
The measures in the policy document are designed to primarily help non-advised drawdown consumers who struggle to make investment decisions; the policy changes aim to empower consumers to make informed investment decisions that align with their saving objectives, which in turn can help bolster individual retirement outcomes.
The new rules confirm that drawdown providers must present non-advised consumers entering drawdown, or those transferring in assets that are already in drawdown, with four investment pathway options. Smaller providers will have an easement, so although they have to offer investment pathways, they do not have to provide investment solutions.
In addition, providers must ensure that non-advised consumers that enter drawdown investing wholly or predominantly in cash only do so if they have made an active decision; providers will further need to offer warnings to those who opt to invest in cash.
Finally, pension providers will be required to give consumers in decumulation annual information on the costs and charges of their pension, displayed in a single monetary amount. This applies for both advised and non-advised consumers who have withdrawn at least one uncrystallised fund pension lump sum payment. This measure, in particular, promotes market competition by making charges clearer and comparisons easier.
Helen Morrissey, pension specialist at Royal London, said: “Today’s policy statement goes a long way towards helping those customers entering income drawdown without an adviser to still achieve a decent outcome. This is particularly the case when it comes to making sure that no one is invested primarily in cash unless they have made a specific decision to [be].
“Offering access to investment pathways will help ensure these customers are invested in assets that better meet their retirement needs. Similarly, presenting charges in a clearer way will also go a long way towards preventing peoples’ hard-earned pensions being eroded by high charges over time.
“In short, these recommendations will safeguard non-advised customers against sleepwalking into bad retirement outcomes.”