Providers are backing calls for the FCA and the Government to give firms safe harbour to move customers out of legacy products with out-of-date default investment strategies.
A report published by Standard Life’s independent governance committee earlier this week revealed the insurer wants to move customers out of historical default strategies but is being prevented by contract terms.
While modern policies allow the provider to switch investments, this flexibility does not extend to some older products.
Defaults either “do not have a lifestyle design or have a design which remains targeted at annuity purchase despite the introduction of the pension freedoms”, according to the IGC.
Standard Life says it is working with the FCA and Department for Work and Pensions on a solution.
Aegon head of pensions Kate Smith says the regulator should intervene across the industry.
She says: “It would be a lot easier, and in customers’ better interests if they are locked in to older-style contracts, if the FCA was able to come up with a set of principles. That would be helpful but we’d have to show our governance model was strong and prove how a move was in customers’ best interests.”
But an insider at a large provider, who wished to remain anonymous, says the FCA’s treating customers fairly rules already allow firms to move members to better products.
He says: “We’re trying to cope as best we can with the different options people might take at retirement. We’ve moved everything on to a new basis.
“I don’t know what’s stopping Standard saying ‘We’re going to shift you to this fund, and you can decide to stay or move to another one if you want, but the reason we’re moving you is because of x, y and z’. That’s the approach we took.”
Standard Life IGC chair René Poisson says: “Although in our view Standard Life should seek to make the same changes to the older policies with the permissive wording, it’s clear it is unlikely to be able to do that without some form of regulatory green light.
“We believe this is very strongly in the interest of members but it’s not obvious it can do this without something from the DWP, FCA and Parliament.”
The FCA declined to comment.