The Association of British Insurers says the FCA will need to revisit its review of the annuity market after Chancellor George Osborne announced a fundamental overhaul of the pensions tax regime.
In his Budget speech yesterday Osborne shocked the industry when he revealed plans to allow savers to take their entire pension pot as cash when they reach age 55. The reform will be introduced in April next year.
ABI director of policy Huw Evans says the announcement will fundamentally change the retirement income market and require the regulator to rethink its annuities market study.
He says: “The FCA market study will need revisiting. While the FCA got a line of sight on these announcements a few days ago, it will now need to think through the scope, timing and purpose of its annuity market study.
“However much as it may say it wants to run in parallel with the Treasury’s changes, the rules of the game have been changed.”
Evans also suggests the reforms announced in the Budget could hamper DWP plans to encourage employers to set up “collective” defined contribution schemes.
He says: “Collective DC looks even more unlikely to get off the ground. While ‘hybrid’ schemes are name checked in the Budget consultation paper, George Osborne’s move yesterday further defines the UK system in the opposite direction – as an individualistic system, built around a customer’s right to choose their own retirement income, free from any constraints imposed by the pension scheme or provider they have hitherto saved with.”
In addition, the Government wants to provide all savers with face-to-face guidance when they reach retirement. The Exchequer will provide £20m to get this proposal off the ground, with ongoing costs paid through a levy on providers and trust-based pension schemes.
Evans argues the levy should be spread across the entire financial services industry.
“The scale of operation required to ensure face-to-face individual guidance would be very significant if introduced,” he says.
“Given the guidance process could easily see customers drawing down their pension assets and investing them more widely, it would certainly be more equitable if all parts of the financial services sector contributed to the cost of the guidance service and the more liberalised market from which they will all benefit.”