FCA Retirement Outcomes Review
28 Jun 2018
Commenting on the FCA’s Retirement Outcomes Review, Lee Hollingworth, Partner at Hymans Robertson, said:
“As the FCA’s paper shows, the vast majority of people are underserved and unsupported with the decisions they now have to make at retirement.
“It’s great to see the measures proposed to encourage shopping around for drawdown, particularly showing a first year charge in pounds and pence, to allow consumers to more easily compare charges across a number of providers. This is a useful basis to enable customers to shop around. But we need to do more.
“We’re seeing parallels in drawdown with what we saw in annuities pre 2017, where despite an open market option consumers rarely shopped around for the best deal. The FCA finally did something about this problem in 2017 and forced providers to actively promote the value of shopping around by having to send details of the best available quote in the market. It’s madness we don’t have this in place already for drawdown, given that many more opt for this versus annuities post freedom and choice. When people choose ‘the path of least resistance’ and go with their existing, provider, there’s a greater chance of being ripped off. It didn’t work for annuities and it doesn’t work in drawdown.
“It’s disappointing that the FCA hasn’t proposed a charge cap for drawdown. We have one of 0.75% in workplace DC accumulation and we see no reason why this shouldn’t the case for decumulation. Arguably the need is greater for drawdown when pots are at their largest at the end of the savings journey.
“The industry needs to start viewing drawdown as a service, not a product. We need personalised solutions that work towards an individual’s goals. The FCA’s proposal of investment pathways to get people into appropriate funds based on duration of investment is a great step in the right direction. Investments should be aligned to goals and provided at low cost.
“We also need to support individuals to understand what a sustainable withdrawal rate is for them to avoid running out of money in later years. Variations in pot size, financial situations and longevity mean that sustainable withdrawal can look very different for different consumers. Understanding how long your pot needs to last is key to making good decisions. Yet baby-boomer men tend to underestimate longevity by 7 years and women by 10 years*. The need for tools that help people better understand and frame their income in the context of their life expectancy could not be greater. Longevity risk is not being managed in current non-advised drawdown strategies.”
*Consumer research undertaken by Hymans Robertson across 3000 people in 2017