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.”