The FCA has refused to rule out a cap on drawdown charges as it releases a flagship report into the state of the retirement market since the pension freedoms.
In its Retirement Outcomes Review published this morning, the FCA is calling on providers to establish ready-made drawdown “investment pathways” to simplify retirement choices and improve engagement from consumers.
The regulator has suggested these pathways could fall into three camps, mapping to three common consumer goals: taking money to provide and income in retirement; taking the money over a short period of time; and keeping invested for a long period and making occasional withdrawals.
The regulator has found concerns over value for money in drawdown, including significant variance in charges, which can be complex, opaque or tough to compare, so has set out plans to force firms to show a one-year charge figure in pounds and pence in the key features illustration they provide to consumers.
The review says: “If firms fail to introduce investment pathways with appropriate charge levels, the FCA has not ruled out introducing a cap on drawdown charges.”
Association of British Insurers chief executive Huw Evans says: “Providers are working hard to encourage consumers to seek guidance and advice to help them make the right decisions for their personal circumstances. Introducing a set of investment pathways for customers going into drawdown is a common-sense approach which should strike the right balance between engaging them in decision-making while taking away some of the complexity.”
According to FCA research, a third of drawdown consumers are 100 per cent invested in cash. Because the FCA says half of these are likely to suffer on income in retirement, it is proposing new rules to force consumers to take an active choice before being placed into cash.
It also wants to see reform of so-called ‘wake-up’ packs, so they are sent earlier and more regularly – every five years from the age of 50 – fitting information into a single page summary.