RegulationNov 26 2015

Drawdown charges to be investigated

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Drawdown charges to be investigated

Yesterday (25 November) the Financial Conduct Authority announced it is investigating the level of charges faced by different consumers in decumulation pension products, and the circumstances in which consumers are required by firms to take advice for those products.

The regulator sent a request to for information to a range of different firms offering access to pension products that allow customers to take flexible incomes.

The FCA said in an update on activities: “This data collection exercise will help us establish whether there is a significant variation between firms for similar products and services, and the extent to which the charges that consumers face may be complex and difficult to understand.

“We will also analyse whether higher charges are concentrated among particular pension pot sizes.”

The regulator intends to publish a summary of its findings in summer 2016 and feed the results of the exercise into its retirement outcomes review for further analysis.

The FCA letter requests information about the products offered to consumers accessing their pensions flexibly over time; mix of investments held within these products and distribution of size of holding by customer and level of charges over time and how these vary by the size of investment made and approach to accessing retirement savings.

Simon Laight, a pensions expert at international law firm Pinsent Masons, said: “Price regulation of retirement products is just around the corner.

“The charges cap that we see in workplace pensions is on its way to the retail retirement world. Some providers are aware and comfortable with this; others less so.

“Pension provision is becoming a utility. Providers are expected/required by government to offer full access (even though there is no legal obligation) and soon regulators will be setting the price as well.”

The FCA study comes after the government admitted it has concerns that people are not shopping around for the best drawdown deal.

Speaking at a Westminster Employment Forum seminar on 5 November, Ronan O’Connor, deputy director for private pensions policy for the Department for Work and Pensions, responded to a question about whether government is concerned about savers failing to shop around for drawdown by saying: “Yes, we are concerned about that”.

He said: “It is true that there were many problems with the annuity market. There were many problems with the situation before pension freedoms, some of them were shopping around, some of them were the kind of one time nature of the decisions, some of them were the perception of the value and not of the annuity market but the problems.”

ruth.gillbe@ft.com