UK watchdog reveals plans to ‘fix’ pension freedoms

The UK’s Financial Conduct Authority (FCA) has today published its long-awaited Retirement Outcomes Review, with plans to ‘fix’ the problems that have arisen due to pension freedoms at the forefront.

In a review document, published on the UK watchdog’s website earlier today, key points included:

  • Retirement wake-up packs to be overhauled and issued earlier (from age 50) and more often (every five years)
  • Firms will also be required to provide retirement risk warnings alongside wake-up packs
  • Savers will receive a one-year charges figure prior to entering drawdown

The regulator is also consulting on a number of market interventions, including:

  • Requiring providers to offer ‘default investment pathways’ for non-advised drawdown savers
  • Requiring drawdown investors to make an active choice to be in cash
  • Requiring firms to disclose the charges consumers actually pay on an annual basis

The review – which has been widely lauded by industry commentators – is also encouraging the UK government to decouple tax free cash from other pension decisions.

‘Serious assessment’

Tom Selby, senior analyst at AJ Bell, said: “The pension freedoms announcement in March 2014 was a shock to everyone in the industry – the FCA included. More than three years after the reforms were introduced, today’s report represents the regulator’s first serious assessment of how the market is working.

On the default investment pathways initiative, Selby points that given the level of pressure exerted on the FCA from various quarters, “it felt inevitable” some form of intervention would be proposed with the aim of protecting non-advised drawdown savers.

“We are pleased the FCA hasn’t jumped in with both feet in this regard and will instead consult on the idea of introducing default investment pathways,” he said.

“This is absolutely the right approach because default investment pathways that are not a personal recommendation would be a very significant development and needs careful consideration.  Different people have very different personal circumstances and so there needs to be full consideration given to how investment pathways will be implemented and monitored over time.

“Successful navigation of drawdown requires engagement and care needs to be taken that creating blanket defaults doesn’t simply hard-wiring inertia into the system,” Selby added.

Gary Robinson
Head of Video and Ezines at Open Door Media Publishing. Deputy Editor, International Investment. An experienced journalist and filmmaker with more than 20 years' financial services experience, both as journalist and originally as a fully qualified IFA, Gary works across both International Investment and InvestmentEurope titles. Previous video production credits include projects on BBC, C4 and SKY.

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