FCA reveals pensions pathway plan

FCA reveals pensions pathway plan

The Financial Conduct Authority (FCA) will be launching its consultation on drawdown investment pathways in January, which will include considerations on cooling-off periods.

Pritheeva Rasaratnam, head of pensions, insurance and retail distribution at the regulator, said at the Westminster Business Forum conference today (December 11) that this consultation will be a real opportunity for the FCA "and more importantly to the industry, to make a significant difference to consumer outcomes during retirement”"

In June, the watchdog revealed in its retirement outcomes review that it will force providers offer their customers easy to access ready-made drawdown investment products, in a bid to prevent them from sticking their money into cash.

The proposal is aimed at making retirees do the best they can with their pension pots, including by nudging them earlier to make a decision about their best egg, and making pension companies clarify costs in pounds and pence not percentages.

Kay Ingram, director of public policy at national firm LEBC, questioned if the FCA will consider introducing a 30-day cooling off period for those who access pension freedoms without advice. 

Ms Rasaratnam said: "Cooling off periods was something that we explored in our discussion paper in the retirement outcomes review, and we will be consulting in January on this, and you will see on that paper where we come out on that."

Ms Ingram, also a panellist at the seminar in London, has reservations about these default solutions.

She said: "I'm not worried about the person who has a small pot and just wants to take out £10,000 to buy a new car, who probably has got three homes in retirement and a good defined benefit pension.

"What I am concerned about is the people we talk to, when they first come to us, and the ideas they have on how they want to spend their money.

"These demonstrate that they have a complete lack of understanding of the tax treatment of lump sums, of the need to make their financial situation sustainable for the long run, and to have some insurance and safety nets built into that plan."

Ms Ingram argued that investment pathways defaults “makes it all look so easy,” and people won't stop themselves and ask if they should be pursuing this route.

She added: "There is where the advice comes in, because a regulated adviser can challenge an individual thinking and help him get that decision into its proper context."

Ms Rasaratnam argued, however, that the FCA isn’t trying to promote non-advised drawdown.

She said: "We aren't trying to discourage consumers from taking advice - advice for some can be a very important part of their journey.

“What we found is that a lot of consumers simply don't want to take advice, and against that backdrop we had to consider how to design a remedy package to address that."