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Advisers torn on FCA’s product innovation focus

Advisers are split on the Financial Conduct Authority’s view of the key areas for pension product innovation.

The regulator’s view on product innovation is that it will be focused on six different areas: income drawdown, lifetime annuities, hybrid and blended solutions; ‘back to back’ products, cash-based products and the new uncrystallised lump sum option.

Whilst some have suggested that innovation is necessary, others have said that the amount of options available will be too confusing for people.

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Tony Larkins, managing director of Beacon Wealth Management, said that companies will have to innovate to prevent themselves from losing business.

“All those areas are important things to be considered for a client facing retirement - innovation in all areas would be good.

“There’s going to be a number of companies looking at the alternative products because annuities are going to be rare. There’s going to be lots of things happening over the next year as companies try to get one up on everyone else because they are not going to want to lose business.”

Mike Pendergast, director of Chester-based Zen Financial Services, said that innovation will need to be done on an ongoing basis.

“With the rules changing so radically, product providers will need to adjust products or introduce new products so policy holders can take advantage of the changes in legislation and access their funds.”

He added that what was needed was more flexibility to existing products, not necessarily new products.

However, Graeme Mitchell, managing director at Lowland Financial, said that the FCA is trying to keep decision making as simple as possible, but in practice this was being over-complicated by the number of options available.

“If you are trying to get something that people understand and is simple and you put half a dozen options out there it is going to be hard for the average layman to find out what’s right for them.

“From a mass market perspective I would say keep it as simple as possible: I’d rather have fewer options: drawdown, annuities and blended.”

Mr Mitchell said that it would be “a nightmare” to have lots of options but that he very much saw the potential for cash-based options.

He added: “There’s a new kind of drawdown on the block where you can get money out - that’s not about keeping income going forever but about getting it out and having it to spend. The FCA need to think about how they view drawdown and the risks of drawdown.”