The FCA has set its sights firmly on the drawdown market in the wake of the pension freedoms and warns it expects prices to drop as the product becomes mass market.
The introduction of the freedoms in April has resulted in billions of pounds of pension money flooding into providers’ drawdown offerings. Most providers have launched non-advised propositions to cater for the increased demand.
Speaking to Money Marketing, FCA director of strategy and competition Chris Woolard says he expects drawdown charges to fall as a result of the reforms.
He says: “Traditionally this has been seen as a high-end, complex, quite expensive product, but the effect of the reforms is to make it mass market.
“Around 20 per cent of firms say they are coming forward with new products, and one of the interests for us will be what are the charges associated with those products and do they reflect the relative simplicity of the transactions required?
“What we would expect to see is a market develop that can meet the needs of different consumers at different levels of complexity.”
Asked if this meant the regulator expects prices to fall, Woolard replied: “Yes.”
While Woolard argues the freedoms are “broadly working well” for consumers, concerns remain that too few savers are shopping around the retirement income market.
Woolard says the regulator will unveil a new set of rules next year to radically simplify wake-up packs in a bid to boost switching rates.
He says: “The retirement income market study looked particularly at the question of shopping around. In that we suggested a number of things that could make a difference, including giving people much better information in their wake-up packs. Not loads of information but more targeted information.
“In particular, a really simple illustration of what you can get with your existing provider versus what you can get if you shop around. We have been testing a number of options for doing that with real firms and real customers.
“We would expect to begin to roll those rules out during the course of 2016 and we think that will make quite a difference.”
Woolard also goes out of his way to praise the pensions industry for the way it has responded to the freedoms, in stark contrast to pensions minister Ros Altmann’s recent attacks on providers.
He says: “We said to the Treasury that [the freedoms] are doable but it is going to be quite tight, and that proved to be the case.
“You don’t often hear the regulator say the industry deserves some credit, but I actually think the industry does deserve some credit. With a series of quite difficult challenges from an operational perspective – in terms of getting systems ready and people trained – it got itself in a position where it could function on day one of the reforms.”
Elsewhere, pressure is building on the FCA to ease the regulatory burden on advisers through the Financial Advice Market Review.
However, Woolard rules out the possibility of a “safe harbour” being created as a result of the FAMR.
He says: “There have been calls within the FAMR process to say ‘if I advise you to buy something, you should somehow disapply the standard to me in certain cases’.
“We would still want to see people take responsibility for the advice they offer. The question for us is ‘are there ways the existing system can be made to work properly, and also do our rules need to be modified in some way to give people greater certainty about using automated models.
“If by safe harbour we mean an adviser can tell someone what they should be buying and walk away from any responsibility, then I don’t think that can work.”
And Woolard rejects claims the rising cost of regulation is preventing firms from innovating.
He says: “I’m not sure I agree with the idea that the cost of regulation has become the main blocker [to innovation].
“We are always conscious of costs and the overall regulatory burden but we also have to remember that, particularly in the market for financial advice, the existence of a regulator creates that market in the first place.”