While moves to overhaul how retirement income products are sold have been welcomed, the regulator has faced criticism from some parts of the industry who claim it has “a distinct lack of appetite” when it comes to tackling the failings of the annuities market.
The FCA’s final retirement income market study confirmed that it will progress with the recommendations made in an earlier report, published in December 2014 and based on a long-running review of the market.
The measures that will implemented include: the requirement for firms to provide an annuity quotation ranking to make it easier for consumers to shop around; redesigning and trialling the information that consumers receive from their providers in the run-up to their retirement, such as wake-up packs; and the creation of a ‘pensions’ dashboard’, which will allow savers to view all their pension pots in a single place.
Christopher Woolard, director of strategy and competition at the FCA, said: “The retirement income market is set for the biggest change in a generation. Over the next 12 months we want to ensure that the market is fit for purpose in the new landscape.”
“We received considerable support for our proposals and we will be working with Government and the industry to implement all of our recommendations so that consumers can have confidence that they are getting the best possible outcome when making decisions on their retirement income.”
The regulator is now contacting firms to work with it on the next stage of retirement income reforms. This includes behavioural trials with consumers on annuity comparisons and wake-up packs, while working with the Government on the development of the pensions dashboard.
Adrian Walker, head of retirement planning at Old Mutual Wealth, points out that consumer understanding of pensions remains low and “any measures to improve this are welcome”. He cites research that shows only 38 per cent of over-55s have a good understanding of annuities and just 26 per cent understand income drawdown.
Measures to encourage shopping around are particularly useful, as are welcome packs to educate savers just before they retire.
“Shopping around for an annuity is proven to increase retirement income for some and different providers will charge a variety of fees for drawdown and offer different levels of service and flexibility,” he said.
“This shows the value of shopping around and we are glad the FCA wants to encourage savers to consider multiple providers at retirement. The issues the FCA is trying to address highlight the value of getting financial advice.”
"Some providers have worked hard to consolidate wake-up packs and lay out the information more clearly. Making wake-up packs more digestible would be a good target for the industry when working with the FCA to remove complexity for customers.”
Walker agrees that the pensions dashboard will help customers understand their overall retirement planning situation. However, he notes developing this “will be complex and will take time”, and not all pension contracts were designed to work alongside an electronic dashboard.
Others have stronger criticisms of the FCA’s plans. Malcolm McLean, senior consultant at actuarial, administration and consultancy service provider Barnett Waddingham, says there was “very little that is new or surprising” in today’s report, as it simply reiterates many of the past findings of the review.
McLean applauds the measures to encourage savers to shop around, saying that having access to an open market is an “absolute must”.
He added: “To that end the requirement that firms provide an annuity quotation ranking for consumers to see the benefit of shopping around will be helpful but in itself does not guarantee the best outcome for the would-be annuitant.”
Meanwhile, plans to redesign and radically simplify the wake-up pack is “a complete non-brainer and should have been done years ago”.
But McLean continued: “Most disappointing of all is the pace at which change in a market so clearly in need of change is drifting along.”
“The FCA plans to consider all this further and to run another customer survey as part of a wider review of its rules in the pension and retirement area later in the summer. It will probably be another year at least before the remedies kick in, making it eight years since the regulatory probe of the market began.”
Furthermore, he argues that the FCA and the Financial Services Authority – its predecessor which first started the review of the retirement income market – have shown “a distinct lack of appetite” when it comes to tackling the past failings of the industry.
“As far as I can see from this latest lengthy report no sanctions appear to be being proposed against those providers whom the FCA had investigated and found evidence of poor practice, particularly where providers actively discouraged people from taking up enhanced annuity products, if not widespread misspelling,” he said.
“Whereas it is important to get things on a proper footing for the future I am not sure it is right to completely ignore and disregard the failings of the past.”
Mark Soper, joint-founder of RetireEasy.co.uk, says the pensions dashboard needs to be widened to include all the various forms of savings that an individual may be building up for their retirement.
Given the FCA has concerns that some providers are limiting the information they provide to consumers rather than highlighting all options available, Soper says limiting the dashboard to pension products “is not going far enough”.
He calls for ISAs and national savings, including the new pensioner bonds, to be added to the dashboard.
As the dashboard was supposed to be a longer term initiative, Soper says pushing it forwards “smacks of desperation” and may mean it is not implemented as well as the Dutch pensions dashboard that inspired it.
“We recommend the development of a dashboard allowing users to view all their lifetime pension savings in one place, as well as all of their accumulated DC pension savings and other sources of retirement income such as defined benefit and state pension entitlements. More work needs to be done here; the pensions dashboard is not the one-stop-shop retirees have been waiting for.”