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Nic Cicutti: FCA must up sense of urgency on non-workplace pensions

The regulator’s pursuit of effective competition in the marketplace is moving at too slow a pace

In the past few days, I have been trying to work out whether I am a glass half full or a half empty kind of person. As a cynical journalist, my instincts tend towards the half empty, but I have been known, on occasion, to feel positive about regulatory and industry initiatives.

So why do I feel so ambivalent about the FCA’s discussion paper, Effective competition in non-workplace pensions (DP18/01)?

This is the regulator’s look at the £400bn market covering individually contracted, defined contribution pension schemes, including stakeholder pensions, personal pensions and Sipps.

In theory, DP18/01 makes many of the right noises. Its stated aim is “to better understand the market for non-workplace pensions: the providers, the consumers and the relationship between them”.

It wants to hear evidence from the industry as to whether competition is working in the marketplace, and if “there is a need to go further to protect consumers”.

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I will come back to my own ambivalence about DP18/01 shortly. But first, we should recognise the positives of the FCA’s approach. One of its starting points for the entire exercise is the findings in the Office of Fair Trading study of the DC workplace pensions market in September 2013.

The study found that competition could not be relied upon to deliver value for money to savers for two reasons: firstly, products were complex, making it difficult for both employers and pension plan holders to make good choices; and secondly, employers themselves often lacked the capability or the incentive to assess value for money.

The end result, in the OFT’s view, was that up to £30bn of savings in old and/or high charging contract and bundled-trust schemes may not be value for money, and a further £10bn in smaller trust-based schemes risked delivering poor value for money because of poor trustee engagement and capability.

What the FCA is trying to do is ask very much the same questions for independently taken out pensions, looking for similarities and differences between the non-workplace market it is reviewing and the earlier OFT study.

For example, the regulator points to parallels between the two types of scheme: similar product design, a market dominated by many of the same providers, complex products making it difficult for consumers to engage, and low levels of ongoing engagement with the product.

FCA zeroes in on competition in non-workplace pensions

The FCA also points to a similar approach on charges, including differential fees for customers who no longer contribute to their pensions, as well as complex structures where comparisons between different products are difficult to make.

It highlights that employers make key decisions in workplace schemes, while decisions about non-workplace pensions are made by individual savers, often with advice.

Also, the fact that employers contribute directly to their members’ pension schemes tends to have a disempowering effect on decisions about switching providers.

That said, the implications of the FCA’s comments are telling. It is clear the regulator believes there is a problem with charges levied on some non-workplace pensions, as well as their opaqueness and the fact that savers are being disadvantaged.

The long-term outcome of the FCA’s fact-finding exercise is likely to be that existing charging structures need to be addressed

The focus of DP18/01 in this area is largely on pre-2001 personal pension contracts and, by and large, Sipps and stakeholder schemes, as well as pensions whose charges are based on the stakeholder model. They are, to an extent, absolved from the worst criticisms from the regulator.

But the long-term outcome of the FCA’s fact-finding exercise is likely to be that existing charging structures for many non-workplace pensions are uncompetitive and need to be addressed.

If what I am saying is correct, why do I still believe the glass is half empty in respect of this document?

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none of the suggestions in DP18/01 are new. This is a paper that could have been written 10 years ago, and likely would have drawn the same conclusions about non-workplace pension contracts.

The second is the FCA’s gonzo-style approach in requesting more information from the industry. The regulator’s method is to ask for “feedback”, as if it didn’t already have the information to hand. Really? If that is the case, what have its researchers been doing all these years?

The third is the incredible amount of time the FCA plans to take to crack the problem we all know applies to non-workplace pensions. The regulator has given itself until the end of April for responses to a request for factual information. After “considering” industry feedback, the FCA will:

“Construct and send a focused data request to providers of non-workplace pensions […] Later in 2018, we plan to publish a paper which will provide feedback on the themes arising from the responses […] and the data collection.
If the evidence demonstrates the existence of consumer harm, we will subsequently consult on proposals to remedy this.”

If you failed, somehow, to spot a sense of urgency in the entire process, you would be right. As long as issues of this nature are addressed with the glacial speed of DP18/01, my glass will always be half empty.

Nic Cicutti can be contacted at  Follow him on twitter



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There are 3 comments at the moment, we would love to hear your opinion too.

  1. Nic you have in one article solved this nations economy, Your right, Abolish all Pensions, and return the money to the individuals, let them decide what and when they want to save and in what Tax Efficient Product they want. This would save the 41.6 Billion Tax Relief paid by HMRC mostly at 40%, which mostly disappears in charges, I was once told by a Director of Abbey Life, the clients are not interested in the charges as long as they are covered by the Tax Relief, By giving back the penson funds the economy would see a Sugared Injection, albeit until spent!, On the back of this the Government should announce that other than the State Pension post 2030 no other State Benefits would be payable post the age of receiving the State Benefit. This would have two distinct effects, one, the people of this fine nation would sit up and understand the State is not there to fund the financial incompetence of non retirement provision, secondly, the state would stop funding the scurrilous charges the pension industry has grown accustomed to and abused.

  2. Some non-workplace pensions are in fact workplace pensions. It is when an employer contributes to a personal, stakeholder or SIPP. That is the first driver.

    The second driver is tax relief. There isn’t a lot of point in contributing to a pension if you are a BRT payer. You need to sak the question – what will the tax rate be when I take benefits. Apart from the PCLS the tax relief for a BRT payer is just loaned money that will be clawed back later. Perhaps in these cases it would make sense to allow an employer to contribute to an ISA for such employees. (with the same CT reliefs as if it were a pension).

    I do agree with some of what Robert Milligan has posted. It is high time the Government stopped being hypocritical on this topic. On the one hand everyone is considered adult enough to trash their cash with drawdown, but have to be nannied to save in the first place. Let people have the option to make their own arrangements and stop dragooning them into sub-standard vanilla flavoured plans. Not all PP, stakeholder and SIPPs are high charging.

  3. Christopher Petrie 17th February 2018 at 9:50 am

    People do have the option to make their own arrangements. Nobody is compelled to stay in a workplace pension.

    What is now compelled is that Employers must help fund towards mostly working class employees retirement, for the first time in history, if the employee wants to be in a pension scheme.

    For reasons unknown to me, Mr Katz continually has a problem with that.

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