The FCA has suggested that providers are failing to assess whether lifestyle investment strategies used by advisers, trustees and employers are still suitable post pension freedoms.
Following the arrival of pension freedoms in 2015, when compulsory annuity purchases were eliminated and those with lifestyle investment strategies were consequently less likely to default to annuities and tax-free cash, the regulator set out to monitor how firms were adapting to the changes.
However, in a recently released report on pension lifestyle strategies, the watchdog raised concerns about the fact that “some firms claim they have little or no responsibility for such strategies”.
This is in spite of the fact that a number of insurers appear to have taken steps to communicate with consumers and third parties about the suitability of “bespoke strategies” in general.
The report reads: “Most life insurers view the responsibility to review bespoke lifestyle strategies as sitting with the third parties who set them up. In some instances, life insurers are undertaking proactive modelling of bespoke lifestyling strategies to assess appropriateness for themselves.”
The regulator also highlighted a lack of evaluation where business written prior to pension freedoms is concerned.
For consumers who have, or are about to reach their de-risking phase especially, the FCA uncovered “a lack of clear communication to these customers explaining how their lifestyle strategy relates to their retirement options following 2015’s pension reforms.”
Legacy business written prior to 2001 was also highlighted as an area of concern in the report.
The FCA said: “We are concerned that firms’ plans for reviewing this business are on a slower track, with reviews typically not planned until late 2017 and into 2018. The same concerns outlined above for customers who are approaching retirement, and the need for clear communication, also apply to these older policies.”
However, for post-retirement freedoms business, the regulator said it was satisfied that the majority of firms had been diligent in reviewing “the appropriateness of lifestyle strategies for new business and post-2012 auto-enrolment contracts […] created new default funds and lifestyle glide paths, and had communicated with the relevant customers when migration exercises have taken place.”