Regulation  

FCA and Royal London clash over ‘broken’ long-term savings market

FCA and Royal London clash over ‘broken’ long-term savings market

Royal London’s chief executive and the head of retail competition at the Financial Conduct Authority (FCA), 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 no one 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 that is structured to be competitive and 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.”

However, Brian Corr, head of the retail sectors department in the competition division at the FCA, disagreed.

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

“I think Phil raises an interesting question when we do our review into the effectiveness of IGCs, i.e what [are they] stimulating in terms of competiton?”

Independent governance committees came under the spotlight last February, when the FCA made ensuring legacy pensions are good value for money the responsibility of IGCs, a mandatory requirement for all pension schemes from pension freedom day last 6 April.

The FCA announced this month it would be reviewing IGCs to see if they are working properly.

Mr Loney added an underlying problem in the long-term savings market is employers are not forced to regularly review their pension schemes against what else is available in the market, to shop around for better deals for employees.

“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,” he said.

One of the “most useful antidotes” to this problem is quality impartial advice, he said, “choosing a product from a reasonably broad pack so you arbitrage the market on behalf of customers.”

Dominic Lindley, an independent financial services consultant, and a part of the Independent 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.

Daren O’Brien, director at London-based Aurora Financial Solutions, said: “IFAs are not sales people, but professional advisers we want a long-term relationship with clients who value and request our advice. Providers sell products and have annual targets while the FCA take years reviewing markets that have moved on before they even get the report out.”

ruth.gillbe@ft.com