FCA chief executive Andrew Bailey says the pension freedoms are the right approach to help individuals deal with the increasing complexities of retirement.
In a speech delivered on Saturday about the watchdog’s view on pensions, Bailey argues the context in which individuals have to make decisions about retirement is becoming more nuanced.
He says the basic pattern where individuals typically move from being net debtors to net asset owners across their working lives and then draw down on those assets in retirement has not changed.
However, he points out the contours of the pattern have changed and argues there is now more uncertainty about how those contours will take shape as generations and individuals age.
He adds: “Moreover, the increase in uncertainty poses very clear challenges not just for the provision of pensions, but also for the provision of advice to individuals on the decisions that go with pensions.
“There is no doubt a tension, even a contradiction, between the degree of uncertainty and the apparent certainty embedded in the design of financial instruments.”
In the speech, Bailey questions if pension freedoms are the right approach.
He says: “The freedoms remain the right course to follow, but supplemented by an expansion in the scale and scope of auto-enrolment, so it isn’t a total free-for-all.”
He adds: “My reason for taking this view is that while the contours of the lifetime model will always change, it is unlikely that we will turn the clock back in the foreseeable future, and greater freedom of choice over decumulation – when and by how much and in what form pensions are put into payment – makes a great deal of sense in terms of the shifts in and uncertainty around the lifetime model.”
However, Bailey says it must be kept in mind that the responsibility for a “very complex area of decision-making” has transferred to individuals.
He says: “We need to do all we can to help people make those decisions. And that is where the FCA, among others, comes in.”
Bailey also reiterates the FCA view that a charge cap on drawdown is not on the table at the current time but intends to review charges in the light of how they evolve as part of its work from the retirement outcomes review.
He adds: “If we find problems with charges, then capping will be on the table as a response.”