The Financial Conduct Authority has said that there is not enough product innovation in the retirement income market.
The criticism is in the regulator's interim findings of its study into pension freedoms, published today (12 July).
The paper stated that although there has been some progress in offering products that allow people to take full advantage of the greater flexibility around what to do with their retirement savings, “product innovation has been limited”.
“For example we have not seen products emerge for the mass market that combine flexibility with an element of guaranteed income,” the FCA report stated.
The FCA noted some innovation, such as tools to aid consumer decision making, simpler drawdown for the mass market and a few ‘hybrid’ products aimed at advised consumers.
“However, we have not seen development of new products combining flexibility and guarantees for the mass market consumers who do not take advice,” it added.
However, the FCA, which was looking whether regulation is overly burdensome and creates barriers to entry and prevents useful product innovation, stated stakeholders had not identified “significant regulatory barriers to innovation".
“We recognise that innovation may pick up as defined contribution pots grow in size and the industry is given more time to develop propositions,” the report said.
“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 DC pots are currently relatively small.”
The FCA said that there had not been much technological innovation, such as ‘robo advice’ in the pension income space, unlike 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.”
The regulator said it wanted to give the market more time to develop before taking any action.
Huw Evans, director general of the Association of British Insurers (ABI) welcomed the report.
“Providers responded swiftly to the pension reforms, which did introduce considerably more choice for savers.
"The market and services are still evolving and the sector is committed to helping customers make informed decisions.
"Work already underway by the ABI and its members includes a project progressing ideas on how a flexible income drawdown comparison tool would work, alongside efforts to increase consumer engagement with pensions and create a ground-breaking pensions dashboard service,” he said.
