The FCA has said that some providers are failing to check that the ‘lifestyling’ of funds used by advisers is still suitable in the wake of pension freedoms.
The regulator conducted a review late last year into whether lifestyle investment strategies – which, up until the pension freedoms, tended to gradually alter a client’s asset mix up until retirement point to target common tax-free cash and annuity purchase levels – were still appropriate post-freedoms.
The FCA has found that, when those investment profiles were set up on a bespoke basis by advisers, trustees or employers, some pension providers were not reaching out to advisers regarding how these are structured.
The FCA’s report reads: “Most life insurers view the responsibility to review bespoke lifestyle strategies as sitting with the third parties who set them up. In some instances, life insurers are undertaking proactive modelling of bespoke lifestyling strategies to assess appropriateness for themselves.
“Most life insurers have taken, or are planning to take, a proactive approach to communicating with both third parties and consumers about the need to review the appropriateness of bespoke strategies. We are concerned, however, that some firms claim they have little or no responsibility for such strategies and have no plans to proactively communicate with third parties, instead waiting to be contacted by them.”
For legacy business likely written before 2001, the FCA said it had specific concerns about how long it was taking providers to review lifestyling arrangements.
For new business and post-2010 auto-enrolment contracts however, the FCA said it was pleased that most firms “had reviewed the appropriateness of lifestyle…had created new default funds and lifestyle glidepaths, and had communicated with relevant customers when migration exercises have taken place.”