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FCA eyes breaking link between tax-free cash and pension

Regulator says consumers should only have to make a choice about their retirement income product when they are ready to do so

FCA logo new 620x430.jpg

The FCA has set out proposals to intervene in the post-pension freedoms market including defaults and charge caps for non-advised drawdown and “decoupling” tax-free cash from the rest of the pension pot.

The regulator has today published its interim findings from its retirement outcomes review, which launched a year ago.

It marks the first comprehensive market study since pension freedoms were rolled out in April 2015.

The FCA says while consumers have welcomed the choice on offer from pension freedoms, it has found competition is not working well for consumers who do not seek advice.

It is also concerned about emerging issues in the non-advised drawdown market, with savers potentially struggling to deal with the complexity of investment decisions.

FCA sets out problems of post-pension freedoms market

The regulator has set a package of potential measures to tackle these concerns.

These include:

  • additional protections for consumers who buy drawdown without advice
  • proposals to enable consumers to access some of their savings early without having to move the rest into a drawdown product
  • proposals to make it easier to compare and shop around for drawdown products

It has suggested default investments for consumers who do not or cannot engage with investment decisions, where charges would be capped.

The FCA also highlights pension schemes that cannot facilitate drawdown and require savers to move into drawdown to access their pot.

It says it is worried consumers may pay higher charges or choose unsuitable investment strategies as a result.

The FCA says: “We consider the decision to access tax-free cash early should be ‘decoupled’ from the decision about what to do with the remainder of the pot.

“This will ensure consumers only have to make a choice about their retirement income product at a time when they are ready to do so, for example, when they are considering fully or partially retiring.”

The regulator adds: “Ahead of the final report, we will work with the relevant stakeholders to explore what changes would have to be made to break this link and the potential costs and benefits of doing so.”

The FCA has asked for feedback on its findings and recommendations and will look to publish a final report next year.


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There are 10 comments at the moment, we would love to hear your opinion too.

  1. In other news the NHS has issued a package of potential measures to tackle issues in the health service. These include:

    •additional protections for patients who are allowed to self-medicate even when they haven’t a clue what they’re doing
    •proposals to enable patients to arrange some of their operations and medication early without having to the rest done until they’re good and ready (as far as they can tell)
    •proposals to make it easier to compare and shop around for doctors and medicines

    It’s not that complicated after all, what could possibly go wrong…

  2. The key will be whether providers will play ball with this, as we have seen with many old legacy contracts they are not prepared to spend disproportionate amounts of money just to facilitate new legislation. The FCA must be aware that all these extra layers of complexity, think MiFID 11, will only add costs to the end consumer, pushing more and more away from affordable good advice.

  3. Julian Stevens 12th July 2017 at 1:55 pm

    What is the basis of the FCA’s assertion that competition isn’t working well for consumers who choose not to seek advice?

    People who choose the DIY route will either shop around for themselves to find what looks like the best value package or they’ll go simply for the quickest and easiest route to get what they’ve already decided want, irrespective of whether it’s competitively priced. So what?

    Don’t the people at the FCA have anything better to do with their days? Well, of course they do. The problem is that all too often they fail to do it.

    Perhaps, as I rather suspect, this latest wave of new investigatory and finger-pointing initiatives is primarily a distraction tactic.

  4. “The FCA says while consumers have welcomed the choice on offer from pension freedoms, it has found competition is not working well for consumers who do not seek advice.”

    And that is a surprise!

    I bought a new car last week, it was Eastern European, unbelievably cheap so I bought the GT super V8 diesel hybrid crank it up version, never asked the salesman anything, just said I want that one so he sold it to me.
    If the FCA had their way he would not have let me buy it, instead I would have the 1.0 pedal harder version.

  5. Has the FCA ever tried dealing with a life company where a pension member just wants to take out all of their £33,000 pension? Months and months of waiting and poor communication.
    Oh, sorry, is that the FCA?

  6. Seriously we need robo regulation:
    Cloud Based consumer Questionnaire to match to cloud based adviser/product provider questionnaire; Purpose does the consumer know what they are doing and if advised does it match the advice

    Half a billion saved in direct regulation and probably a similar amount in indirect regulation

  7. I know a bloke down the pub did it all himself, told me he could get 20% on investing in foreign property. Safe as houses, he could even put it into the fund for me for free, said he gets a commission for doing it so I don’t pay.
    Sound familiar!! Are the FCA trying to spend our money for us when these people claim because they have lost everything.
    I might put my money into the most risky investment I can find. It is a win win bet because if I lose everything I will get it reimbursed via FSCS or FOS.

  8. How can you “decouple” the taking of TFC from income when the very taking of TFC will impact on income levels and sustainability?

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