The Financial Conduct Authority has launched an investigation into the retirement market to assess how competition is developing and whether some regulation is “overly burdensome”.
Its Retirement Outcomes Review follows the Retirement Income Market Study, published in March 2015.
The regulator now wants to assess competition in the sector by looking at how firms and consumers have responded to the pension freedoms.
Christopher Woolard, director of strategy and competition at the FCA, said it is crucial the retirement income market develops in a way that allows consumers to engage with their options, shop around and switch providers where appropriate.
“We also want firms to compete hard for business, offering good outcomes for consumers through lower prices, products and services that meet customer needs, better customer service and wider choice,” he added.
|Review will explore the following in more detail:|
|Shopping around and switching||Given what’s already knows about the difficulties in shopping around for annuities, the FCA wants to understand to what extent consumers can compare and choose between the larger range of products/options now available to them. Whether they can easily compare products, shop around, switch providers where they are not receiving what they want, and make informed decisions.|
|Non-advised consumer journeys||Now that consumers are accessing more complex products without advice, the FCA wants to understand these consumer journeys. It will explore whether complexity causes consumers not to engage, and whether so-called ‘choice architecture’ in non-advised sales leads consumers towards certain products.|
|Business models and barriers to entry||As firms adapt to the changes in this market, the FCA wants to explore what business models and products are emerging. For example, how might firms’ business models impact on consumer engagement and switching, and are there barriers to entry for challenger firms?|
|Impact of regulation on retirement outcomes||Effective regulation needs to move with the times. Are there examples of FCA regulation that are overly burdensome and may constitute disproportionate barriers to entry or prevent useful product innovation?|
The FCA has also published a market update, including the results of its review into how firms are signposting the availability of Pension Wise.
This revealed the majority of firms were meeting requirements, although there were a number of areas where improvements could be made.
It found some firms did not always highlight the different ways in which Pension Wise could be accessed, with wake-up packs and call scripts only including website contact details, as opposed the telephone number for the service.
Inconsistent terminology when making reference to pensions guidance was also identified, along with a minority of firms presenting their own or partner offering in a more prominent manner in written communications, in comparison to Pension Wise signposting.
The FCA has also published the results of behavioural testing of the annuity comparison remedy that was proposed in Retirement Income Market Study.
The testing showed that depending on a variety of circumstances, an annuity comparator increased shopping around from 13 to 40 per cent.