Regulation  

Keep it simple for good outcomes

Key points

The FCA is set to publish its long-awaited final report from Retirement Outcomes Review.

The FCA's annuity comparison provision led to increased switching from 7 per cent up to 25 per cent.

It is the lack of a clear retirement ‘decision-point’ leading to consumers disengaging and then selecting the perceived easiest option.

This review is particularly keen to address the question of why consumer switching has decreased since the introduction of the pension reforms.

Fall in drawdown

It is clear that the impact of RDR is being felt in terms of falling numbers of drawdown and annuity purchases being advised. The number of adviser drawdown has fallen from 97 per cent back in 2013 to 68 per cent today.

Only 42 per cent of annuity sales involve regulated advice. More worryingly, during the same quarter 52 per cent of all pensions going into decumulation decided to fully cash out. 

The FCA is particularly interested in exploring: “Whether a lack of information and comparability of products leads to consumers disengaging, choosing decision-making shortcuts, or making poor decisions. We are also interested in how firms may be able to contribute to or alleviate this complexity (for example, through the design and operation of consumer journeys or product information communication).”

One of the major issues thrown up by Pension Freedoms is that it eliminates the one-off point at which most policyholders move from accumulation to decumulation that is at stated retirement date and when an annuity was purchased. Simultaneously, we are beginning to see a wider trend among people in their mid to late 50s onwards deciding to go into semi-retirement, that is, taking a cut in income in order to improve their lifestyle or embrace a second career. Many of these people may choose to access their retirement savings earlier now that Pension Freedom allows them to do so. 

This begs the question, is the lack of a clear retirement ‘decision-point’ leading to consumers disengaging and then selecting the perceived easiest option (like taking it all out and dumping the savings into a low yielding building society account), or defaulting to a decumulation product with their current provider without properly considering the alternatives? Is there any other catalyst that will prompt people into taking a long-term decision like buying an annuity?