One-size-fits-all investment pathways for clients entering drawdown could soon hit the market, while pension providers could be obliged to explain charging more clearly, according to proposals unveiled by the FCA.
In a policy statement today on the Retirement Outcomes Review and four years on from pensions freedoms, the regulator outlined its plans to mandate fairer treatment of pre-retirees.
The FCA has confirmed two proposals from the review that received much support across the industry when they were announced in June last year.
The regulator has backed establishment of investment pathways for drawdown and the sending of “wake-up” packs to customers over 50.
This means firms must offer customers a range of investment solutions that broadly meet their objectives if they are not receiving financial advice.
Known as investment pathways, the implementation follows the regulator’s previously expressed concerns that customers moving into drawdown are likely holding investments that do not meet their needs.
FCA executive director of strategy and competition Christopher Woolard says: “Our proposals on investment pathways will help non-advised drawdown consumers select from four relatively simple choices, designed to meet their broad retirement objectives so that they can maximise their income in retirement.”
The introduction of investment pathways could benefit pre-retirees by up to £25m a year, the FCA estimates.
Despite this, Quilter head of retirement policy Jon Greer warns one-size-fits-all solutions may hamper engagement.
“The risk around investment pathways is it becomes the path of least resistance and people go for a default instead of engaging. Engagment is at the heart of issues around retirement policy.”
The aim of all reforms initially proposed in the Retirement Outcome Review is to continue protecting customers from poor outcomes and to improve consumer engagement with retirement decisions by making cost breakdowns and comparisons easier to understands.
The FCA says backing the introduction of “wake-up” packs – a standard delivery of information provided to people approaching retirement – will ensure this wider objective is met.
The guidance outlined by the FCA last summer on disclosure will remain in place with the addition of the “wake-up” packs.
Greer says: “Standardisation of timing and content of “wake-up” packs is a solid step to boost people’s engagement.”
Moving forward, pension providers will also have to explain client fees more simply by describing charges in “pounds and pence”.
This follows the regulators calls for bring charging disclosure into line with Mifid II requirements last year.
The FCA says: “We will require firms to state that adviser remuneration is not included in the charges figure provided. When disclosing actual pension charges, we will require firms to clarify if any actual adviser remuneration has been paid out.”
Once proposals are in place, the FCA says providers will be given a 12-month implementation period to collate necessary data and identify missing information on costs they may need to be compliant moving forward.
The FCA is taking feedback on the consultation until 5 April.