Pensions  

Pathfinders: The low-down on the FCA's Retirement Outcomes Review proposals

Pathfinders: The low-down on the FCA's Retirement Outcomes Review proposals

The Financial Conduct Authority has followed its Retirement Outcomes Review with a policy statement and a further consultation paper on more changes.

The review was launched on the back of the pension freedoms to ascertain how the retirement income market was dealing with the more complex options that are now available to consumers. The final report was published in June 2018 alongside the first round of proposed changes, which have been set out, following consultation, in the policy statement PS19/1. They include:

  • Changes to the timing and content of wake-up packs;
  • Changes to annuity information prompts;
  • Making the cost of drawdown products clearer and comparisons easier.

Wake-up packs

Wake-up packs have been sent to those approaching retirement for many years, principally to remind them about their pension and give them details of the options that are available in future. The trigger points for this pack were fairly limited; they would typically only be issued at the point when the client showed an interest in accessing funds or came close to their stated retirement date.

The policy statement has confirmed that these trigger points will be earlier and more frequent, to encourage clients to become more engaged with their retirement options. This means that providers will now additionally be required to send a wake-up pack to a client in the following circumstances:

  • Within two months after the client reaches 50 years of age; and
  • Four to 10 weeks before the client reaches 55 years of age; and
  • At five-year intervals after the wake-up pack is sent until the client’s pension fund is fully crystallised;
  • Unless the firm has given the client such a statement in the last 12 months.

The wake-up pack sent to 50-year-olds will be a smaller, cut-down version that only includes a single-page summary document and appropriate retirement-risk warnings. This is because in most cases the client will not be able to access their funds at this point in time, and there is no point in creating unnecessary confusion. 

The document should only include the high-level key information about the policy. The inclusion of generic risk warnings for clients is another change, but again these should only account for a single page of A4 paper.

These changes should help clients plan their retirement better, assuming the packs don’t just get filed away. It will, however, mean more paperwork for providers to produce. We wait to see if this can really increase engagement and clarity with regards to retirement options. 

Annuity information prompts

The annuity information prompt was initially introduced in March 2018. These prompts require providers to display annuity quotes in a certain way, and disclose if there is likely to be a better rate available on the open market. The FCA felt that more needed to be done with regards to enhanced annuity options in particular. Its thematic review showed that between 39 and 48 per cent of consumers who bought a standard annuity from their existing provider may have been eligible to buy an enhanced annuity. 

The regulator therefore consulted on further changes to the prompts, and has now introduced the following:

l Companies are required to ask consumers who express an interest in buying an annuity questions to determine whether they are potentially eligible for an enhanced annuity.

l Firms must also use the enhanced annuity information, where relevant, to generate a market‑leading annuity quote.