In its paper on the changing financial needs across generations, published last week (May 2), the Financial Conduct Authority highlighted that government tax reliefs on pensions were attractive to savers but stiff rules on pension scheme registration meant engaging younger savers was more difficult than needed be.
The regulator wants to understand whether apps similar to those used by open banking could help increase the long-term pension savings rates of individuals.
For instance, many bank accounts offer to automatically transfer 'change' from a purchase to a savings account.
But there are no services whereby money would automatically enter a pension and benefit from the tax relief given by the government.
The FCA sated: "One possible reason for limited innovation in the sector may be the conditions required for a scheme to become an HMRC approved pension scheme.
"The tax relief that makes pension savings appealing to many consumers is only available through HMRC registered schemes."
The FCA also named examples in the decumulation space where innovation had previously been discussed but "so far, evidence for the development of these products has been very limited".
These included deferred annuities, hybrid products, care annuities, and long-term care insurance.
Rules around registered pension schemes, particularly small self-administered schemes, were tightened last year in a bid to combat scheme abuse by scammers.
An HMRC spokesperson said: "The government provides tax relief to encourage people to save for their retirement. A pension scheme must meet the conditions to be a registered pension scheme to qualify for tax relief.
"To help combat pension liberation we introduced an enhanced checking process for all new pension schemes and a range of other changes including the introduction of the fit and proper test for all pension trustees."
Complicated guidance and a raft of rules can be a deterrent for innovation and development, according to Claire Trott, head of pensions strategy at St. James’s Place.
She said: "The FCA are very keen on innovation and guidance rather than rules. However, in order for a pension scheme to have the benefits of tax relief on contributions, funds that grow in a tax privileged environment and for the payment of some of the fund out tax free they need to be registered with HMRC.
"HMRC have rules, not guidance, set in legislation that a scheme must maintain in order to get and keep their registration as a pension scheme.
"All of these rules will mean that there are restrictions on innovation, it isn’t possible to just operate something like a bank account where funds can be accessed and paid in at a cash machine for example. The funds need to be taxed when they are paid out, tax relief needs to be claimed when they are paid in which all involve detailed processes within a pension scheme.
"The pension freedoms have meant people can access their funds more easily in a format that suits them but it has also brought more rules, such as the money purchase annual allowance, rules will generally restrict innovation because everything has to be done within them."
Tom Selby, senior analyst at AJ Bell, said: "Policymakers often talk of innovation without spelling out what they mean when it comes to retirement.
"I would argue that a whole host of options are available to savers and those drawing an income, with different charges and services from a wide range of providers.
"The real challenge is getting people to engage with those options, rather than chasing some nameless ‘innovation’ for the sake of it."
Some commentators have pointed out that people are more engaged with their pensions when they are able to check the value through their mobiles.
The regulator seemed to agree, as it pointed out that poor access to information could be to blame for a lack of engagement from savers.
Mr Selby said: "App-based technology also has the potential to revolutionise savings in the UK, with investments available at the touch of a button. Such advances would have been the stuff of sci-fi fantasy when Baby Boomers were saving for their future retirement."
The government is in the process of launching a pensions dashboard, which will give savers information about their pension savings all in one place.
Further versions are expected to be developed by the industry in the coming years.
The FCA will be holding a conference on July 2, 2019 to debate the issues raised.
amy.austin@ft.com
