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FCA: We will not constrain industry on pension freedoms

The FCA insists it does not want to constrain the industry ahead of next week’s pension freedoms despite raising concerns about the complexity of the new environment.

The regulator last week warned savers face new risks as a result of the development of “complex” and “difficult to compare” products resulting from the reforms.

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 FCA says,

But experts are frustrated by the FCA’s lack of action.

In the final report of its retirement income market study, published last month, 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. In addition, the FCA says blended products that combine guarantees and flexible access will be hard to compare.

Speaking to Money Marketing, FCA director of competition Mary Starks insists the regulator is “keen not to constrain” the industry.

But she adds: “It’s undoubtedly true comparisons will be more complex and we don’t want the industry obfuscating.”

TUC pensions policy officer Tim Sharp says: “Even relatively modest measures to assist consumers, such as giving rules of thumb for drawdown or cash withdrawal levels, have been kicked into the long grass.

“There is a real risk that just as regulators and Government dawdled for years while many savers were sold poor value annuities, they will stand by as people struggle to get a fair deal under the new rules. Being ripped off in a different way is a curious form of freedom.”

The regulator also says providers may use the new uncrystallised funds pension lump sum withdrawal option to give customers access to their pensions and warns firms could 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.

Starks says: “The concerns we’re expressing are hypothetical, the kind of things we want to see happening going forward. We’re not at the moment accusing anybody of anything.

“It’s about setting out clearl there are things we want to see – we want to see firms making products that meet consumer needs. We do want to see firms innovating around how they talk to consumers. We don’t want to see complex and opaque charging.

“Likewise we are focused on the choice architecture that firms use to steer consumers down routes that have sales targets or profit margins in mind, not appropriate consumer outcomes.”

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.

But providers say the regulator has not done enough to boost shopping around.

Royal London chief executive Phil Loney says: “This [the annuity comparison] is a step in the right direction but we suggest that the current market failure will only be addressed if providers are required go further. Instead of an anonymous annuity quote, providers should be required by the regulator to identify the top three competitors’ quotes by name.”


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There are 10 comments at the moment, we would love to hear your opinion too.

  1. As I have said elsewhere – the FCA has not done enough for the advisory community. What is the client’s best interests when he insists on blowing his head off and using you to provide the ammo. But then for many, the answer is simple. We walk away and the client loses access to good, solid advice. Their problem and not ours.

  2. Jabba The Hutt 2nd April 2015 at 2:52 pm

    Constraining an industry that funds its very existence is truly the epitome of the expression “turkeys voting for Christmas”………enough said!

  3. Call a spade... 2nd April 2015 at 2:55 pm

    The FCA complains that the industry is not innovative enough and then that new products are too complex! Well, providing enough income for someone to live on for an unknown lifespan, with unknown future inflation, and throwing in their wish to leave some kind of inheritance IS pretty complex. The simple, easy to compare option was an annuity….

    As for “evidence of firms only providing information on options they offer”, it’s been said before: since when did Tesco tell you what was on offer from Aldi or Lidl? Out here in the real world, where companies are not supported by taxpayers’ money, they need to sell to survive. If someone wants to know about other options, they can ask around, look it up online or – of course – go to an independent adviser.

  4. “The FCA insists it does not want to constrain the industry ahead of next week’s pension freedoms” I agree, no it wants to strangle every last breath out of it !! cut the head of the snake if you will !

    New exam rules, half arsed rules and guidance, inconsistencies again between them and FOS, unwillingness to tackle the un-regulated market (advice and investments), more levies to fund guidance, letting George Osborne run off with 1.3 billion of its funds … the list go’s on.

    As Sam, said the FCA has not done enough for the advisory community, remember “you will get regulatory dividend” pfft !!!

  5. Julian Stevens 7th April 2015 at 8:56 am

    Given that the TSC’s single biggest complaint about the FCA is its seemingly endless obfuscation, is it not a bit rich for the FCA to claim that it doesn’t want to see the industry obfuscating?

  6. Of course the Regulator should constrain the industry on these so called freedoms.

    I seem to be somewhat of a lone voice, but I am convinced that time will prove me right.

    In the vast majority of cases these new provisions portend a catastrophe for plan holders. For the smaller pots all that was needed was a rise in the triviality limit. For the rest most of the infrastructure was already in place. The rest has been spin and tax gathering.

    The latest reports on longevity and demography show a reduction in life expectancy. This will eventually be reflected in improved annuity rates, as will the eventual rise in interest rates.

  7. @Harry – As you say an increase in the triviality limit was all that was needed. I’ve just declined to implement a request of an insistent client with a £62k pot as he should be going for drawdown with a guarantee or an annuity. That is NOT to say there are not clients I will implement the pension freedoms for with smaller pots as I have ones were it does make sense to do so (usually where they could have qualified for flexible drawdown last year anyway)

  8. Clearly the Treasury have panicked because the advisory community will not play ball with pension freedoms,and are now instructing the FCA to take a kid gloves approach in order to achieve their political and monetary objectives.

    Do not take us for fools, there are some very capable minds in our community, and we know full well that any deviation from the correct course of advice will cost us later on when we have a new regulator with retrospective powers and “clients ” with selective memories.

  9. Until the proverbial hits the fan and then it will be everyone’s fault apart from the FCA or the Government.

    The real problem isn’t the industry but those that are not regulated by the FCA. We have all seen the adverts quoting property investments in the papers with ‘guaranteed’ returns of 8% which the FCA seems oblivious to – one does wonder at times if they read the papers at the FCA.

  10. Julian Stevens 7th April 2015 at 2:15 pm

    It does seem perverse in the extreme that whilst the FCA doesn’t regulate unregulated investments (obviously) it holds responsible for their failures those that it does regulate.

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