Hot off the press...freedoms and responsibilities
04 Jul 2018 - Estimated reading time: 2 minutes
Last year, in the FCA’s interim report on Retirement Outcomes, we gleaned a lot of information on how the population as a whole had responded to pension freedoms. The Final Report, issued at the end of June, now sets out the proposed measures (via CP18/17) that could help many people who are underserved and unsupported with the decisions that they now have to make at retirement.
The FCA’s main concerns relate to non-advised customers in drawdown, but their proposed measures are designed to provide greater transparency to assist all customers. The data gathered by the FCA shows that rather than customers in drawdown withdrawing too much, they are investing too cautiously for the long term – with many investing their drawdown plans in cash.
We welcome the proposals for additional communications for drawdown in the form of regular and targeted ‘wake up’ packs before accessing the pot. We also welcome the change which will require firms to provide regular client communications for those who have not yet taken an income.
The industry needs to start viewing drawdown as a service rather than just another product. We need personalised solutions that work towards an individual’s goals. The FCA’s proposal for ‘investment pathways’ – three ready-made drawdown investment solutions within a simple choice architecture – to get people into appropriate funds based on duration of investment is a great step in the right direction.
Of course all of this will need to be done in a way that is helpful to consumers, rather than confusing them with information overload!
It’s great to see measures proposed to encourage shopping around for drawdown plans, in particular showing a first year charge in pounds and pence – to allow consumers to more easily compare charges across a number of different plans and providers. Even though charge caps aren’t being proposed just yet, it may be the case that by disclosing charges in this way at the start of the retirement journey – when pots are at their largest – could help to bring charges down.
The FCA also proposes changes for annuity providers, with the main one being to ask retirees sufficient health questions to be able to show the highest available level of enhanced annuity income in the market, even if the provider in question doesn’t offer enhanced annuities. Currently providers just need to show the best standard annuity in the market.
Overall the suggested measures seem appropriate in going some way to assist retirees in dealing with their decision making responsibilities.
Hymans Robertson has a wealth of knowledge and experience in product development, the retirement market and drawdown. Our consultants would be delighted to support you. If you would like more information or advice, please get in touch.