New FCA reporting requirements are set to cost the pensions industry between £600,000 and £1.2m to put in place, the regulator has said.
In a consultation paper today, the FCA says it plans to make providers of retirement income products provide more data to the regulator about the types and volumes of products they are selling from September 2018.
A new six-monthly drawdown, uncrystallised funds pension lump sum and annuities flow data return will show number of transfers between providers over the period, the number of plan holders who entered drawdown over the period, how different distribution channels are used and the use of advice and Pension Wise
On a yearly basis, the FCA also intends to collect “retirement income stock data and withdrawals flow data”, including the number of annuity contracts in payment, the value of withdrawals over the period, the annual rate of withdrawal by pot size and age bands, and the use of advice for withdrawals.
Large firms will face an estimated cost of £15,000 to £25,000 each in initial costs, the FCA says. Small firms could spend up to £10,000 each implementing the changes.
Annual ongoing costs are also projected to be between £2,000 and £20,000 depending on the size of firms.
The total cost to industry in set up costs has been calculated at between £600,000 and £1.2m, with total ongoing costs projected to come it at between £500,000 and £900,000 a year.
Though the FCA acknowledged the requirements are “likely to increase compliance costs for the firms,” it said they would “not affect the number of firms providing retirement income products or their incentives to compete with each other for customers because the costs of complying with [the] proposed provisions is relatively minor compared to the size of the firms.”
The FCA added: “Data play an important role in how we supervise regulated firms. Against the backdrop of the fundamental changes in the retirement income market, data are even more important to help us advance our objectives. High quality data help us to identify emerging risks and use our supervisory resources most effectively. Data also inform our policy development and allow us to monitor the market. “
The FCA says it expects to spend £500,000 updating its own reporting systems, and that this will come out of existing resources.
Just Retirement group communications director Stephen Lowe welcomed the reforms as a potential “early warning system” for future market failure.
He says: “Last year’s ‘pension freedom’ reforms were always going to have a profound impact on people’s behaviour. Most of the data produced in these early days has been on an ad hoc basis and lacks the deep insight needed to really understand what people are doing and what the consequences are likely to be.”
“The Government has said that there is no evidence that people are acting irresponsibly but we don’t have much evidence they are being careful or considered either. We need a great deal more insight, in particular into how individuals are using their wealth in aggregate rather than just on a pot by pot basis.”