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FCA refuses to rule out drawdown charge cap as regulator calls for ‘pounds and pence’ fees

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.

One-third back compulsory advice on drawdown

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.

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. Nicholas Pleasure 28th June 2018 at 9:21 am

    Maybe the FCA should just start it’s own insurance/investment/pension company and show us all how well it can be done.

    They seem to be very good at telling everyone else how to run their businesses whilst making an absolute mess of the job they are supposed to be doing; regulating.

  2. “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”.

    It is a commercial world out there and I can think of no other industry that has a regulatory insistence that charges for what they make/ build/ sell have to be declared.

    When you buy a new house, is there a breakdown of build costs? The same with a car, a drug, a holiday or flight. Do supermarkets declare what the costs are for selling you a pint of milk?

    A bit simplistic I know but if regulation carries on messing with fixing what in many cases is not broken and more people use a financial adviser, the financial services world may be a better place.

    Just a thought?

  3. Neil Liversidge 28th June 2018 at 10:46 am

    Great. Can we please have a cap on F-Pack fees? Here’s a good rule-of-thumb way to work out whether or not the regulator is succeeding or failing in its mission: If FSCS levies reduce, it’s succeeding. If they increase, it’s failing. Now, where are my FSCS invoices for the last 14 years and what do they tell me?

    • Mostly they tell you that consumers were getting ripped off in unprotected areas that are now subject to regulation, like occupational-to-occupational transfer advice.

  4. Julian Stevens 28th June 2018 at 6:00 pm

    When was the last time somebody from the FCA claimed We are not a price regulator?

  5. It’s not rocket science, the FCA should stipulate drawdown has to be an advised product. Problem solved.

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