The Financial Conduct Authority (FCA) has launched a probe into non-workplace pensions to see whether there are issues around competition and consumer protection.
The regulator published a discussion paper today (2 February), saying it was keen to divert its attention from the workplace pensions market to individual private pensions.
Under the spotlight will be whether providers are competing on charges and if there are barriers to consumers identifying, and choosing, from more competitive products.
The FCA said it was concerned informal defaults may be operating in the market for non-workplace pensions that are not subject to the same protection as defaults in workplace pensions
Christopher Woolard, executive director of strategy and competition, said: “In recent years we, alongside the Department for Work and Pensions and the Pensions Regulator, have taken a number of steps to address weaknesses in the workplace pensions market.
“We believe it is now right to look at the other side of the picture and assess whether competition is working in non-workplace pensions.”
He added: “A diverse group of people save into non-workplace pensions and it is a growing market. We want to hear from anyone with an interest in this subject about how they think the market is working.”
Individual private pensions are products such as individual personal pensions, stakeholder personal pensions, and self-invested personal pensions (Sipps).
They also include free standing additional voluntary contributions (FSAVCs), s32 buyouts, and retirement annuities.
The FCA said, collectively, the market represents about £400bn of assets under management, which was more than double the amount invested in contract-based defined contribution (DC) workplace pension schemes.
It estimated at least one in four adults have savings in such schemes.
The regulator is looking to understand how the differences and similarities between the workplace and non-workplace markets impact competition and consumer outcomes.
In particular, it will focus on product complexity, factors that may reduce consumer engagement, whether customers can identify and freely move to more competitive products, and fund choice and the use of defaults.
The regulator is inviting feedback before 27 April. It will then collect data from providers to better understand any problems identified and decide whether any remedies are needed.
Tom McPhail, head of policy at Hargreaves Lansdown, said: “Auto-enrolment into workplace pensions represents the future of retirement saving for millions, however the FCA is right to take a look at the non-workplace sector too.
"There are around 5 million members of non-employer sponsored personal pensions. Some of them do receive employer contributions but as they’re not auto-enrolment schemes they don’t share the same levels of governance and controls as workplace schemes.
"We’re hopeful we won’t see any major interventions, we think the personal pension sector is largely working well and a period free from rule changes would probably be popular with customers and the industry alike.”
carmen.reichman@ft.com
