Regulation 

Keep it simple for good outcomes

Keep it simple for good outcomes

Within the next month or so, the FCA is set to publish its long-awaited final report from Retirement Outcomes Review, which follows on from February 2014’s TR14/2 Thematic Review of Annuities and its aftermath - the Retirement Income Market Study (RIMS) published in March 2015.

RIMS uncovered a number of issues relating to decumulation consumer decision-making following the introduction of Pension Freedom & Choice reforms first announced in the Budget 2014. RIMS specifically demanded:

1.    Annuity quotation comparisons. When a customer has decided to buy an annuity they can easily identify if they are getting a better deal by shopping around

2.    Redesigning information that consumers receive from providers in the run-up to retirement (most notably the Wake-up Pack), and testing modifications to determine if they are changing consumer behaviour. 

3.    Creating a pension dashboard to allow consumers to see all of their pension pots in one place by 2019

4.    Monitoring by the FCA to track market developments and consumer behaviour and outcomes, as well as take-up of the Pension Wise service. 

Research that the FCA conducted as regards information prompts at the point of annuity purchase consideration, as detailed in CP16/37 entitled: Implementing Information prompts in the annuity market, published in November 2016, looks interesting: 

According to the regulator, annuity comparison provision increased switching from 7 per cent up to 25 per cent and increased shopping around from 13 per cent to 40 per cent. Clearly, this was a significant find which led the FCA to press initially for annuity comparison capability to be built into Key Facts documentation by 1st September 2017.

Industry pushback

We were only given clarity that, following industry pushback, this change in the 26th May must now be implemented by 1st March 2018. Our instinct is that we may well see more product-specific comparative information provision being pushed into regulatorily-required documentation in the future. 

This leads naturally on to a deeper look at the Retirement Outcomes Review itself. It focused on four related areas:

1.    Shopping around. The FCA is exploring the extent to which consumers can compare the larger range of products/options available to them from age 55 post-pensions freedom. Can they compare products easily, shop around, switch providers when they are not being offered what they want and make sound informed decisions?

2.    Non-advised customer journeys. The FCA is probing whether in a more complex decumulation decision-making environment, and one in which people are much less likely to have regulated advice today, are consumer journeys to decumulation offerings smooth. Or is the increased complexity they are confronted with causing them “not to engage or leading them towards certain products, choices and decisions”?

3.    Business models and barriers to entry. As providers adapt to the changes the FCA is exploring what business models and products are emerging and what risks these might pose in terms of reduced competition in the market. How might firms’ business models impact on consumer engagement and switching, and are there barriers to entry to challenger firms?

4.    Impact of regulation on retirement outcomes. Are there examples where FCA regulation is overly burdensome and may be inadvertently contributing to barriers to entry or preventing useful product innovation by firms?

The quarterly market data collection exercises which the FCA has been doing, as part of RIMS, over the last couple of years does give us some clues as to what is going on. The last quarter of 2015 figures for income drawdown and annuity sales shows that more than half of customers stay with their existing provider for decumulation purchases: 53 per cent of existing pension holders went on to buy their income drawdown offering from the same provider, while 57 per cent of their annuity customers were from existing policy holders. 

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