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Standard Life in talks with FCA over pension default concerns

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Standard Life is in talks with the Government and the FCA over concerns its old default funds remain targeted at annuity purchase.

A report by the provider’s Independent Governance Committee, published today, reveals worries historic default strategies “either do not have a lifestyle design or have a design which remains targeted at annuity purchase despite the introduction of the pension freedoms”.

It adds: “We have asked Standard Life to amend these default strategies to match the lifestyle profiles incorporated in the current pension products.”

In its response, Standard Life says it is “aware of and acknowledges the issues in relation to people still invested in lifestyle strategies targeted towards annuity purchase”.

However, the firm says: “The contracts we have in place do not allow Standard Life to take investment decisions (either redirecting future contributions or switching existing funds) on members’ behalf.

“However, we are in agreement that this action will be in the best interests of the majority of members so we are actively engaging with both the FCA and the Department for Work and Pensions to find a solution to this problem that will allow providers to move members into more appropriate solutions and hope to be able to agree a way forward soon.

“In the meantime, we have started a programme of communications with relevant members to ensure they are aware of their options to initiate their own investment switches, should they wish to do so.”

The FCA declined to comment.

The pension freedoms have presented a significant investment challenge to all providers.

While previously default strategies were geared around annuity purchase, the reforms introduced in April last year have shifted consumer behaviour, resulting in almost £6bn being withdrawn from pensions either through drawdown or via cash lump-sums in the first nine months.

This has forced insurers to wrestle with the problem of how to design appropriate default decumulation strategies given the raft of retirement income options now available to members.

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Comments

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  1. So are we saying that any default which implies a specific change of investment over time does not align with the issue regarding investment decisions taken on behalf of clients?
    I think the comment re annuity purchase is a red herring, however, it does seem to me that this argument cold be levelled at any managed fund which allows any leeway in allocation to different assets within a range. One could argue that moving out on the equity assets at the expense of a reduction in fixed interest say could well reflect a change in investment direction which did not necessarily align with what the member signed up for in the first place.

    Alternatively if the managed fund is OK then surely the lifestyle approach is as both approaches were clarified at outset.

    Unintended consequences eh? Quite incredible how the Government and regulatory bodies manage to create complications out of nothing simply because they don’t have a clue about what they are doing.

    Ian Coley

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