Drawdown  

MPs push for pathways charge cap

He said: "A charge cap of 0.75 per cent on retirement pathways is superficially attractive but risks storing up significant risks of consumer detriment.

"Drawdown investors have to be protected from investment and financial planning risks whose potential impact on their financial well-being far outweigh the difference of a few basis points in charges.

"They need active management to protect them through fluctuating market conditions and they need good tools and guidance to help them plan their income withdrawal strategies.

"Get these wrong and no charge cap in the world will protect them."

But, Gregg McClymont, the director of policy at The People’s Pension, welcomed the idea of a charge cap.

He said: “There is no reason why vanilla decumulation products – like the pathways - should cost more than accumulation products."

But he cautioned: "While the pathways fix issues in the sale of non-advised flexi access drawdown, we don’t see them as a model for fixing the at retirement market.

"That’s going to require a better understanding of savers' needs and further innovation to build ‘whole of life’ pension products."

The FCA published the final 77-page policy statement of its Retirement Outcomes Review last month (July 30) in which it confirmed rules requiring drawdown providers to offer non-advised consumers a choice of four investment pathways. 

The FCA proposed the pathways after it found many consumers were solely focused on taking tax-free cash from their pensions and were "insufficiently engaged" with deciding how to invest funds that moved into drawdown.

The regulator said it expects providers to issue warnings to consumers who decide to invest in cash, as well as those already in cash when the final rules come into force. 

Pension providers will also have to give consumers in decumulation information on the costs and charges they have paid on their pension pot on an annual basis, to be communicated in a single pounds and pence figure. 

Providers will have 12 months to implement the changes, despite respondent providers claiming such a timeline would be "challenging" as a result of IT and system changes and suggesting an 18 month implementation period instead.

amy.austin@ft.com

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