Once again this has been a busy week, but this time it was thanks to the regulator and not George Osborne.
Here are the five key news themes which emerged this week:
1) FCA committed market manipulation.
No one came out unscathed from the Davis Review, least of all the FCA. Conducted by Simon Davis of Clifford Chance, into the handling of an announcement regarding a review of the life insurance industry, the 200-odd page report contained some startling revelations, including that Clive Adamson did not even conduct the interview with the Telegraph.
The regulator’s supervision department realised there were sensitive issues for life insurers, therefore there was a “risk” that the contents of the review was ‘price-sensitive’, however, the issue of price-sensitive information was not addressed when pre-briefings were given.
According to law firm CMS, a bank or insurer that did this with price-sensitive information would be fined millions and its chief executive would be fired. Not the FCA though, which just highlights how unaccountable the organisation is.
Simon Morris, partner at CMS, said that while the FCA assured the industry in its response that lessons have been learned, the board and chief executive escaped scot-free (although they did lose some of their bonus).
He said: “No real censure there.” I couldn’t agree more.
2) Pension papers raise more questions.
Perhaps attempting to bury bad news, the regulator published two papers on Wednesday; its annuity review and retirement income market study. The former did not find wide-spread mis-selling of annuities, but did order firms to carry out further work. It was also clear that shopping around does not work, as people do not understand where to go and some providers were not clear about this.
In the other paper, the FCA said it will be working with the government to develop an alternative to the current, lengthy wake-up pack.
It also proposed a new ‘pensions dashboard’. While this was welcomed by the industry, law firm Eversheds questioned who was going to be building it. Will there be further costs for the industry for this?
The FCA is also consulting on replacing the Association of British Insurers’ rules with its own. The ABI said this was pleasing, as it wanted the code to be developed into rules that will apply across the entire pensions market.
3) Regulator expects business model innovation
The FCA also predicted innovation in business models as well as products. It expects to see an increase in direct to consumer business models, particularly by insurers. These will probably involve interaction with potential customers in the run up to, and throughout the retirement journey, with a significant digital/online element to them.
It expects firms to develop a “more holistic” digital proposition for consumers going forward, “in an attempt to digitise the wider pension lifecycle and customer journey towards, at and through retirement”.
The regulator believes this will allow firms and consumers to interact at the different stages of the retirement journey, as well as providing consumers with greater access to information at an earlier stage.
Finally, the FCA stated that it expects some providers to offer direct advice services for customers who cannot service themselves through non-advised routes or simply wish to speak to an adviser.
4) More calls for Nest restrictions to be lifted now.
The shadow pensions minister reiterated his previous calls that Nest’s restrictions need to be lifted now and not in three years’ time as is currently the plan.
In September this year, the government confirmed it intends to remove Nest’s annual contribution limit and bulk transfer restrictions from 2017.
Gregg McClymont, Labour MP for Cumbernauld, Kilsyth and Kirkintilloch East, said they need to be lifted as fast as possible.
“Nest has done a very, very important job alongside The People’s Pension and Now: Pensions and others in driving quality upwards and cost downwards in the first phase of auto-enrolment, but for Nest to continue to play that role it must be able to compete on a level playing field with the big providers.”
Pensions expert Ros Altmann has also been very vocal about this, stating that it should happen sooner than in 2017.
5) At-retirement mis-selling is going to happen.
This week we raised concerns about a property investment firm promoting cashing out a pension to buy a property. Not only does it fail to give any warnings about the implications of this but it also seems to guarantee returns.
The regulator warned it expects to see more schemes that are getting people to transfer their pension to achieve “better returns” in its retirement income study. It warned that consumers are at risk and many of the firms involved are unauthorised and “operating illegally”.
Even where the investments are not outright scams, they tend to be speculative, illiquid, niche schemes that are unsuitable for the investment of pension savings, the FCA said.
To address these issues, the watchdog is working with the Pensions Regulator and others on a multi-agency initiative looking at aspects of pension liberation and scams.
donia.o’loughlin@ft.com
