The FCA is in talks with providers over radical simplifications to retirement wake-up packs in the wake of the pension freedoms.
In a wide-ranging consultation paper on communications in financial services, the regulator reiterates concerns that consumers are failing to shop around at retirement following the introduction of pension freedoms in April.
The FCA says: “We would like to see communications that raise consumers’ awareness of the right to, and the benefits of, shopping around. Many consumers have multiple pots of pension saving and understanding choices at retirement requires an appreciation of their total pension savings and how this relates to the tax and benefits systems and the state pension.
“We believe that this comparison would be substantially easier if communications and terminology were standardised.”
The FCA says it is in talks with providers about revamping at-retirement communications. Earlier this week, Money Marketing revealed LV= had begun a trial of a one-page ‘pensions passport’ document in place of traditional wake-up packs.
“We are currently discussing with providers how they can work with us to behaviourally test new at-retirement communications,” the FCA says.
“They will then be able to trial the information with customers and measure the impacts on our objectives. We hope that, by working in partnership with the FCA, providers can develop communications that substantially reduce the quantity of unnecessary information provided while focusing on the key information needed by consumers. We intend to learn from this testing to consult on a further strengthening of our rules on at-retirement communications in late 2016.”
The FCA is also consulting on scrapping a number of disclosure documents which it says are ineffective or poorly understood by customers.
The regulator says it has identified sections of its handbook rules which “have not been as effective as we first envisaged in terms of informing consumers”. The FCA intends to consult on deleting these sections.
It says the sections include the consumer-friendly principles and practices of financial management, which is a disclosure document setting out providers’ approach to managing their with-profits business.
The regulator says: “Anecdotal evidence and previous reviews suggest that most consumers do not read the CFPPFM and, if they do, complex wording or superficial explanations inhibit understanding making the communication not as effective as first envisaged.”
The FCA also plans to ditch the initial disclosure document which mortgage and investment distributors can use if they wish to disclose their services and how much they cost. It says this “duplicates” information to consumers and firms adopt a “tick-box” approach to the document.
The FCA is also consulting on scrapping the short report document, a half-yearly post-sale disclosure produced by asset managers for investors in retail authorised funds.
The regulator says the document “may not meet the original aim of providing clear and focused information about the fund”.
Also in the paper, the FCA says that terms and conditions “typify consumers’ concerns about information complexity and overload”.
The regulator says that in many cases firms take an “over-disclosure” approach to terms and conditions with the aim of mitigating the risk of liability.
The FCA says: “Not only does this approach have implications for firms’ printing and distribution costs, but participants in our roundtables provided no compelling evidence that this was a successful risk-mitigation strategy.
“This approach all adds to consumer misunderstanding and consequently a lack of trust.”