OpinionJul 16 2018

The FCA’s Retirement Outcomes paper is a sight for sore eyes

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The FCA’s Retirement Outcomes paper is a sight for sore eyes
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Having spent the last month in Petra, head down in a scorching dust bowl indulging my passion for archaeology, there’s not much that causes me to look up, other than the odd scorpion or sand in my eye. 

But the wonders of modern technology mean I’ve not entirely managed to shake off Her Majesty’s financial services industry either. And old habits die hard.

What did cause me to look up, do a double take, and wonder if I needed to go and find some cool shade was the publication of the FCA’s Retirement Outcomes Review.

Not, mind you, for its catchy, attention grabbing title.

‘Retirement Outcomes Review: Proposed Changes to our Rules and Guidance (CP18/17)’ hardly trips off the tongue.

Old habits clearly die hard for them too.

The double take was more (and at risk of giving the most back handed of compliments) because I have never seen so much common sense in a consultation paper.

etting your risk profile right is far more important than the fund you choose. Get it right, and everything else has a far better chance of following.

Not that I’m rolling out the bunting just yet – never underestimate the ability of powerful, vested lobbying forces to water down some sensible thinking.

I’m referring, of course, to pension lifestyling. Forget my trusty, but dusty, pick and tooth brush, the FCA paper has potentially delivered more of a hammer blow to the sector, exposing some of the issues that have gone under the radar for many consumers for far too long.

Take this extract, for instance: “… we are minded to consult on rules that provide that, if a non-advised consumer moving into drawdown is to invest wholly or predominantly in cash, they must make an active choice to do so. They must not be ‘defaulted’ into cash.

“When the consumer makes an active choice to invest wholly or predominantly in cash, we believe that a firm should give simple, generic warnings to the consumer before they transact.”

The FCA is, of course, referring to ‘cash’ in a broad sense to include cash-like assets.

But the reason for my double take was because the consultation chimed with so much of 7IM’s own thinking.

Last year, we launched a ‘We Need to Talk About’ campaign, alongside the publication of a 7IM discussion paper, Challenging Traditional Attitudes Towards Risk and Retirement.

The paper flagged up some of the inherent problems with derisking as retirement approaches, at a time when we tend to manage money to life expectancy, rather than a set retirement date. 

Millions of people are still being automatically derisked and don’t even know it.

It might be the right strategy for some people, but not all, and last year I called on the government to mandate time on this issue, with financial education absolutely central. So yes – a double take was most definitely in order.

There’s a long road ahead, but the debate on lifestyling is a long overdue conversation.

Getting your risk profile right is far more important than the fund you choose. Get it right, and everything else has a far better chance of following.

Get it wrong, and you can go horribly off course. Which is why good quality financial advice is so crucial.

The earlier people are educated about risk and reward, and the issues around ‘derisking’, the more powerful this direction of thinking could become.

The pensions lifestyling industry is estimated to be around £100bn in size.

I’m not predicting its imminent fall, but I think it is big enough to be handle a few digs.

So now I’m back from one archaeological dig, it might be time for some more proverbial digging.

Justin Urquhart Stewart is co-founder and head of corporate development at Seven Investment Management (7IM)