The Financial Conduct Authority has warned providers that if they fail to create retirement income products for non-advised savers then Nest could be allowed to enter this market.
In a 122-page paper published today (12 July), the FCA reported there has been some progress, such as tools to aid consumer decision making, simpler drawdown for the mass market and a few ‘hybrid’ products (mainly aimed at advised consumers).
However, the FCA reported it has not seen development of new products combining flexibility and guarantees for the mass market consumers who do not take advice.
The regulator stated: “We also have not seen much technological innovation, such as ‘robo-advice’. Currently automated advice is more popular in wealth management.
“However, it is expected that due to the lower cost and convenience it could become more popular in larger markets, including retirement income. Stakeholders did not identify specific regulatory barriers to innovation that we should be addressing at this time.
“We found that the main barriers to innovation are the pace of policy change, uncertainty about how the market may develop in the future, consumer inertia and the fact that most defined contribution pots are currently relatively small.
“We think that the incentives for innovating will increase over time as consumer DC pots grow in size. We heard that some providers are already developing new product propositions. Again, we want to give the market further time to develop before we take any action.”
The regulator stated their findings on the level of innovation were consistent with those set out by the DWP as part of its recent decision not to allow Nest to enter the retirement income market at this time.
However the FCA stated it agrees with the DWP that this decision should be kept under active review given the failure of providers to come up with a greater array of retirement income solutions.
The FCA stated: “If the market fails to deliver innovative products for mass market consumers, there may be scope for Nest to fill an important gap.”
When asked to comment on the FCA’s remarks, Nest’s chief customer officer Gavin Perera-Betts said: “We welcome the interim findings of this market study. Nest has long been concerned that our members should be able to efficiently and effectively access the retirement market.
“A large proportion of Nest’s five million members will be more reliant on their DC pots in retirement than previous generations, and it is of the utmost importance that they should be provided with the right support structures to be able to access them confidently and sustainably.
“The findings of this interim report are a much needed addition to the debate around freedom and choice.
“Nest is supportive of any moves which both encourage product innovation as well as improving the protections for any consumers transitioning into retirement without advice – in particular the provision of default pathways that provide for those who cannot or do not engage with investment decisions.
“We will continue to work closely with government, the regulator and industry on the options available to our members.”
But Fiona Tait, technical director of Intelligent Pensions, said she was not convinced that there is a need for lots of product innovations, at least in terms of the wrappers available.
Ms Tait said: “Take-up of third-way plans remains low and the increasing popularity of drawdown suggests that what we need are better ways to help individuals manage their drawdown plans rather than complicated new product structures.”
The FCA’s paper and comments about innovation come after just last week, MetLife announced it would close its wealth management business to new business.
The provider announced it is pulling the plug on wealth management to “refocus its strategy” to drive the growth of its employee benefits and individual protection businesses.
MetLife launched its UK wealth management business in 2007 with guaranteed ‘third-way’ retirement and investment solutions and served around 50,000 customers.
emma.hughes@ft.com
