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FCA: Customers do not listen to drawdown information

Customers are going into non-advised drawdown regardless of the options communicated to them, according to the findings of a review by the FCA published today.

The regulator assessed a sample of non-advised drawdown sales by firms covering approximately 74 per cent of the market by sales volume for the period from April 2015 to April 2017.

This included life insurers and Sipp operators and looked at all forms of communication with customers, including written, telephone and online.

Drawdown sales are now twice as high as annuity sales, with 37 per cent of drawdown sales made without advice.

The FCA notes firms are offering online tools and calculators to help customers make informed decisions.

However, it found some customers do not fully engage with the information and are therefore potentially putting themselves at risk of harm.

The findings will also inform the FCA’s Retirement Outcomes Review, which will be published during the first half of 2018.

These findings and the Retirement Outcomes Review final report will also inform the FCA and The Pensions Regulator’s joint strategic approach to the pensions and retirement income sector, due to be published later this year.

Royal London director of policy Steve Webb says: “The FCA’s research reinforces the value of taking financial advice when making key at-retirement decisions.

“Too many unadvised consumers are not engaging with the information which providers send them because they have already made up their mind what they want to do.

“In addition, many are very focused on accessing their tax-free cash and give relatively little attention to where the rest of their money goes, often leaving it in low-return cash investments.”

Webb adds: “There may be a case for reviewing whether people should be able to access tax free cash and leave the rest invested so that they do not lose out on future investment growth.

“We also need to make sure that people get wake-up packs and other information much sooner, rather than after they have made up their minds.”

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Comments

There are 12 comments at the moment, we would love to hear your opinion too.

  1. Not a surprise to hear this. Customers of advisers do not read suitability reports either, and do not read illustrations and warnings. They do not understand the minute details contained in the key features documents. Documentation is there mainly to cover the bums of the advisers giving the advice and very rarely helps customers understand things properly and very rarely helps them make a decision. The sooner the FCA realise that good advice is not related to documentation and paperwork the better. Even the term “good advice” is open to interpretation. What seems “good advice” can lead to unintentionally awful outcomes, and perversely what seems “bad advice” can lead to marvellous outcomes. There is a lot of unimaginative, lazy thinking when it comes to regulating advice. And a lot of government policy making is ill-considered (from all parties), rushed through without appropriate thought of consequences, and a lot of products are constructed in ways that disadvantage the client. Getting wake up packs earlier will have no impact on the problem of customers not reading them. They will just go in the bin earlier in the process.

  2. So why the surprise, this is exactly what the government intended. Trillions of pounds in pension funds just winking at the Chancellor was too big a temptation, and as always let’s live for today. Forget about how the landscape will look in ten years!

    Anybody remember Gordon Brown’s first tax raid on pension funds and selling off the gold at bargain basement prices. Hilarious except it’s not funny!

  3. Do smokers read the cautionary notices on fag packets before smoking. Do drinkers take note of the health warnings on the bottle. We are a nation of people who think they know better. Money is a huge(hypnotic) driving force that is sometimes too powerful to counter. To hell with the consequences I want the money now

  4. This is not news to anyone who has ever sat down with a client to advise them. Mr Boleyn and Lord Snooty have said all that needs to be said on client engagement. It’s a fact of life and you can’t pass rules to change it.

    The Government have decided on pension freedoms and that necessarily comes with downsides. Some clients will inevitably be worse off because of the decisions THEY make. What the FCA need to do is decide how they deal with the reality rather than fighting against it or pretending they can circumvent it somehow (largely by blaming others).

  5. Andrew Macintyre 28th March 2018 at 3:01 pm

    If the FCA were not so far detached from reality, this would come as no shock to them..! Financial advisers, who actually deal with the real world, all said this is what would happen when pension freedoms were first announced. What planet are the FCA actually on?

  6. Apart from all that has already been said above, which is spot on, it is the policyholders money, the policyholders decision and like with their other savings, when they’re gone they’re gone; they’re over 18 and know full well what happens when you run out of money (unless it’s through adverse market performance of course)! Enough of this nannying!

  7. I bet they will remember every single word when they want to complain 20 years down the line

  8. If the FCA is concerned about people entering DrawDown without taking advice and making unwise choices without bothering to read all the literature properly, that’s their problem. The solution is obvious.

    Then again, wasn’t the whole idea of George Osborne’s (in my view misbegotten) Pension Freedoms to give people…..freedom, freedom to do what they want with their pension funds, for better or for worse? Yes, it’s been a Pandora’s Box, but what does the FCA propose doing about it without curtailing policyholders’ freedoms of choice?

  9. Ultimately regulation is currently written under the (misplaced) assumption that the right regulation will modify behaviour to the point where consumers will self direct into becoming informed consumers. This leads to continual well intentioned but ineffective tinkering which reaches few but costs everyone plenty.

    There is perhaps a psychometric argument that if we embed the concepts of financial planning into a good movie, or soap opera, or perhaps a computer game you might get some unintentional learning across to consumers – but other than that, forget it. Humans are humans, and will continue to be humans for a few years yet.

  10. Is fretting about the issue of some people deciding to make their own retirement choices without advice an appropriate allocation of the FCA’s resources anyway?

    The one thing on which everybody seems to agree is that however much information is thrust upon consumers, many just ignore it and don’t want to pay a third party to take them through it all, line by line, to help them understand the implications of every conceivable option. That’s a simple fact of life.

    Again, one is reminded of David Owen’s statement that if you try to prioritise everything, you end up prioritising nothing. And so it is with the FCA.

    • There is probably an optimal amount and quality of information you can give to a client that gives the best chance of engaging them and imparting some good. However, I would suggest that point was passed many years ago.

      The FCA (and other regulators) go by the mantra that more information equals better outcomes. It’s well-intentioned but fundamentally flawed. In practice it’s worse than that because there is now so much information given to clients that 95% or more are overwhelmed and ignore it or don’t understand it. Add in the PRIIPS KIDs that are inherently misleading and you have regulatory roadblock to better client outcomes.

      The FCA need to decide whether they are more interested in being seen to do the right thing or doing the right thing. If the latter then some serious thinking needs to be done, as well as accepting that they will be going up against their political masters.

  11. Julian Stevens 3rd April 2018 at 8:56 am

    The root of the problem may well be the entrenched public perception that annuities represent poor value for money and the erroneous yet apparently widespread assumption that DrawDown offers a way of extracting a quart from a pint pot.

    I don’t understand why the FCA doesn’t insist that all pre-retirement packs must be fronted by a single, brightly coloured laminated page setting out a bullet point list of options with the basic pros and cons of each, including taking professional advice. Most advisers offer an initial consultation at their own expense, so shouldn’t this important fact be highlighted?

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