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.
This isn’t a complicated requirement.
Adviser requirements
The adviser will have to identify the consumer objective and corresponding pathway, and put together their reasoning why their recommendation is superior.
But it is one that advisers have to be aware of and to build into their processes for drawdown recommendations from next August, and probably for Sipp recommendations in future years.
The publication of a charges league table may be another example.
Once investment pathways are launched next year there will be occasions where providers have to highlight the Money and Pensions Service’s drawdown comparator to consumers.
Likewise, all individual pension holders, whether advised or not, will be pushed towards a charges league table.
The FCA’s proposed changes to the non-workplace pensions market appear to be a fixed approach, and at the moment it seems doubtful whether the regulator will stray too far from the script it has adopted.
Financial advisers and planners need to be aware of the possible changes and what they mean for their clients and processes.
They also should be aware of the make-up of the individual pension market and which clients could benefit from switching to more modern contracts.
