The FCA is warning savers face new risks as a result of the development of “complex” and ”difficult to compare” products in the wake of the pension freedoms.
Non-advised customers may also lose out as a result of providers shielding them from the full range of income options, in favour of products they offer themselves, the regulator says.
In the final report of its retirement income market study, the FCA says competition between providers of non-advised drawdown could be weakened by the variety of charges and investments meaning consumers “are likely to find comparison of these products more difficult”.
There is a also a risk savers purchase products with embedded capital and income guarantees that they do not need or understand, the report warns. The FCA also says blended products that combine guarantees and flexible access will be hard to compare.
It adds: “There is also a risk that firms do not invest in, or adequately develop IT systems and operational process that support blended solutions. This could affect customer service and administration.”
In addition, the regulator says providers may use new withdrawal option uncrystallised funds pension lump sum to give customers access to their pensions and warns firms may present UFPLS as a default option without properly explaining alternatives.
Firms developing direct-to-consumer business models need to be “mindful” of the boundaries between information-only, regulated advice and a personal recommendation, the FCA says.
The regulator has found evidence of firms only providing information on options they offer, rather than all the retirement income options available.
It says: “There is a risk that consumers may view their retirement income options as limited to those offered by the firm, and fail to appreciate that there may be other options, not offered by the firm, that could be more suitable for their needs.”
The final report confirms the regulator will be continuing to work on the remedies proposed in an interim report published in December.
These include including a new requirement on providers to show how their annuity rates compare to the open market, to consider how they and the guidance service Pension Wise “frame” different products, slimming down wake-up packs, and the long-term development of a pensions ‘dashboard’ to pull together relevant financial details.
It is expected firms will be required to adopt the annuity quote comparison and new wake-up packs in 2016.