The regulator's perspective

Following the introduction of the pension freedoms in 2015, the FCA launched the Retirement Outcomes Review to assess how the market has evolved and to address any areas of concern.

The primary focus of the FCA was on consumers who do not take regulated advice. In June 2018 the FCA published its final report which identified areas of concern. The final report set out the FCA findings and the proposed remedies, which were consulted on in two tranches.

The result of the subsequent two consultations was Policy Statement 19/1 which implemented the first package of remedies, this included:

  • Revised rules in respect of the information which is sent to consumers before they decide how to access their pension savings, including ‘wake-up’ packs, ‘wake-up’ pack reminders, and additional retirement risk warnings.
  • Enhancements to the information provided to consumers about annuities and eligibility for enhanced annuities.
  • Changes to make the cost of drawdown products clearer and more comparable.

Changes to making the cost of drawdown products clearer come into force in April 2020.

Policy Statement 19/5 sets out the second package of remedies from the Retirement Outcome Review which include:

  • Introducing ‘investment pathways’ for consumers entering drawdown without taking advice.
  • Ensuring that consumers entering drawdown only invest mainly in cash if they take an active decision to do so.
  • Requiring firms to send annual information on all the costs and charges paid over the previous year to consumers who have accessed their pension.

The final rules and guidance set out in PS19/5 take effect on the 1st August 2020.

 

Assessing suitability

In 2012, the FCA reviewed the emergence of Centralised Investment Propositions (CIP). Its findings are just as likely to apply to Centralised Retirement Propositions. In summary, it concluded that while there were undoubted benefits to a well-constructed CIP, there were areas of concern firms should bear in mind when constructing a CIP:

  • The needs and objectives of clients should be at the heart of any CIP.
  • There is a risk that clients are shoe-horned into a CIP – it’s not right for everyone.
  • Firms should ensure there are robust checks and controls to mitigate against poor outcomes.