- more wake-up packs are sent to all customers on a regular basis from age 50.
- expected charges are set out in pounds and pence on drawdown and UFPLS key feature illustrations.
- non-advised clients are offered investment pathways to help them make a decision about what investment option to choose to meet a particular objective once they have accessed their pension. An IGC should monitor the investment pathway investments to ensure they offer value for money.
- providers have to warn consumers who are invested pre-dominantly in cash.
- actual charges paid in pounds and pence are shown on annual drawdown statements.
FCA’s proposed remedies for non-workplace pensions
When considering the non-workplace pensions market, the FCA has not strayed too far (if at all) from this rulebook.
In fact, the solutions it is advocating look remarkably similar to those already adopted for other areas.
- providers will have to offer ready-made investment solutions (with lifestyling) to non-advised consumers to align with their broad objectives. This could be a single pathway or multiple pathways tailored to different objectives.
- providers will have to warn all customers about the long-term impact of investing predominantly in cash.
- providers will have to show charges incurred in pounds and pence. In addition an independent body, which will most likely be the FCA, will publish a charges league table to help people compare charges.
- considering further the role of IGCs in assessing value for money, and whether they would be appropriate and proportionate for the individual pension market. IGCs can be complicated and expensive beasts to run.
None of the FCA’s research and findings will probably come as a surprise to financial advisers and planners.
The research throws into sharp focus the state of the individual pension market.
It highlights the vast number of people who are members of closed individual and stakeholder personal pensions.
These are likely to be older contracts, and many people could be paying much higher charges than they need to.
These people will greatly benefit from moving to a newer-style individual pension, offering lower charges and additional features, such as pensions freedom flexibility.
The FCA is advocating this cohort consider their current position and encouraging switches within this market.
Sometimes this can be complicated – especially if the person holds scheme-specific protection for higher tax-free cash or an earlier pension age – and these people will need help from financial advisers and planners to negotiate this route.
Many of the proposed solutions have already been (or are in the throes of being) adopted for different pension markets – in particular those accessing their pensions through the Retirement Outcomes Review work.
Important questions to ask
However, they are not yet tried and tested.
Investment pathways and changes to charges disclosure will be introduced from August next year and it is unclear at the moment how they will affect consumer behaviour.
There is also an important question about whether the solutions it has introduced for, say, workplace pensions, can work just as well for the individual market.
Consumers in this market are a varied bunch, as the FCA research proves.
Some will be unengaged with their pensions, but others, such as Sipp holders, will be very much alive to their investments and may resent the FCA trying to force an investment solution upon them.
There is a temptation to dismiss the FCA’s proposed remedies as something that will apply only to non-advised clients and have no implications for those who work with an adviser.
But the regulator will apply a broad brush and all types of clients will get caught.
For example, the FCA believes investment pathways will also deliver benefits for advised consumers, and proposes that when advisers are making recommendations about personal pensions, they explain why the recommended personal pension investment is at least as suitable as the pathway.
This is exactly the same approach advisers will have to adopt when advising clients on choosing their drawdown investment strategies from August next year.