FCA and Royal London clash over long-term savings market

FCA and Royal London clash over long-term savings market

Royal London’s chief executive and the head of retail competition at the Financial Conduct Authority have clashed over who is to blame for what has been branded a “fundamentally broken” long-term savings market.

Speaking this week at the Association of British Insurers conference on long-term savings, Royal London CEO Phil Loney said: “The truth is the buy side of the long term savings market is fundamentally broken and has been for some time, and nobody has really done anything about that.”

Mr Loney said there is plenty of rivalry in the sector, but that is not the same as having an industry which is structured to be competitive and to work in the interests of consumers.

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“Independent governance committees interestingly are not a compeition tool, they are an alternative to competitive tool.”

But Brian Corr, head of the retail sectors department in the competition division at the Financial conduct Authority disagreed

“My sense would be that I don’t think it is [the buy side] is fundamentally broken,” he said.

“I think Phil raises an interesting point and an interesting question when we do our review into the effectiveness of IGCs ie what is it stimulating in terms of competiton? - rather than what is it just delivering from a members that are already in the scheme?”

Mr Loney added: “The underlying problem is employers don’t have the legal duties to bring their auto-enrolment schemes or their pensions schemes back to market on a regular basis to shop around [for better deals for pension savers].

“You’ll find it happens naturally with very large employers but smaller employers there’s a big risk the provider of the scheme will fulfill their auto-enrolment obligations and that’s it.

“One of the most useful antedotes to these buy-side problems is quality advice, impartial advice in the market place, not just giving a recommendation but choosing a product from a reasonably broad pack so you arbitrage the market on behalf of customers.”

Independent governance committees came under the spotlight recently as the FCA announced it would be reviewing them to see if they are working properly.

Since last February, the FCA made ensuring legacy pensions are good value for money the responsibility of independent governance committees, which became a mandatory requirement for all pension schemes from pension freedom day last 6 April.

Also on the topic of independent governance committees, Dominic Lindley, an independent financial services consultant, and a part of the Financial Services Consumer Panel, said there is a gaping hole in many of the independent governance committees’ assessments of value for money, because they did not consider retirement income or annuities.

“Now we know if you give a consumer annuity rate 20 per cent of the market best that is like taking 11 years of their pension contributions and burning it.”

He added he didn’t see any of the independent governance committees criticising their providers for offering poor value annuities and there was very little mention of income drawdown charges.