Some drawdown customers could receive an estimated 37% more retirement income per year by investing in a mix of assets rather than cash, according to the final report of the Financial Conduct Authority's (FCA) Retirement Outcomes Review.
The report, published on 28 June 2018, is accompanied by the launch of a consultation on a package of measures that have been proposed to protect consumers' pension pots, promote competition in the retirement income market and improve consumer engagement.
Of the 49 proposals listed in the report, 37 have been raised for discussion, and 12 have been raised for consultation.
The deadline for comments on those proposals raised for discussion is 9 August 2018. Comments on proposals raised for consultation must be received by 6 September 2018, the date that the consultation is due to close. The resulting policy statement will be released in the first quarter of 2019.
The FCA is consulting on proposed changes to the provision of 'wake-up packs' to consumers. The suggested changes would see the packs incorporate a one-page headline document, or pensions passport, written in clear and accessible language, as well as specific retirement risk warnings.
The FCA also proposes that the packs be sent at the lower age of 50, and then every five years subsequently, until consumers' pension pots have been fully accessed.
Feedback is being sought from stakeholders on proposals that, at the point of entering drawdown or buying an annuity, providers should offer ready-made drawdown investment solutions reflecting standardised consumer objectives. The FCA is also seeking feedback on the proposal that new consumers accessing drawdown will have to make an active choice to be in cash.
The FCA is consulting on the proposal that firms should provide a summary of key information at the front of the Key Features Illustration (KFI), a regulated document that must be given to customers starting a new investment. The summary would include a one-year charge figure that is comparable across KFIs.
The FCA also suggests that firms should make consumers aware of their eligibility for an enhanced annuity.
Once a consumer has entered drawdown, the FCA proposes that providers should send them information annually, and is seeking feedback on the suggestion that firms should remind customers annually of their investment pathway and ability to switch.
Christopher Woolard, executive director of strategy and competition at the FCA, said: “We know that the choices introduced by the pension freedoms have been popular with many consumers. However, they’re now required to make more complicated decisions than ever before. Many people need more support when making choices. The measures we have outlined today will help them think about that earlier, create investment pathways to help them with their choices and make costs and charges easier to understand."
Jamie Jenkins, head of pensions strategy at Standard Life, said: “This is the most comprehensive review of the retirement market since the new freedoms were introduced in 2015, and we welcome the findings. The FCA has identified a number of areas where the industry could do more for consumers in supporting them with their retirement decisions."
Tom McPhail, head of policy at Hargreaves Lansdown, added: “The pension freedoms are popular and working well, but investors often need help and guidance in managing their retirement savings, these proposals will help address these needs.
“The risk of staying in cash over the long-term is your pension fund won’t grow as much as it could, meaning you get less income to live on in retirement. The FCA is asking pension providers to steer investors towards a selection of investment strategies which would help them avoid the underperformance risk of staying in cash.
“Investors need simple, timely pointers to their options for accessing their pensions. The introduction of a simple document of no more than a couple of pages with clear concise information, will be a welcome relief to anyone who has ever had to wide through the gobbledygook which has sometimes been sent out by pension companies in the past.”
Kay Ingram, director of public policy at LEBC Group, said: “We share the FCA’s concern that those who access their pensions without advice are potentially missing the opportunity to get the best out of their plans.
“The FCA’s proposals to ask pension providers to simplify their 'wake-up' packs and provide annual statements to those in drawdown are welcome, but we fear that over reliance on providers to engage consumers could perpetuate the problem of consumers not shopping around and simply accepting the line of least resistance."
