The pensions market is attracting a lot of publicity, and a lot of regulatory scrutiny of late. Edwin Schooling Latter, Director of Markets and Wholesale Policy at the Financial Conduct Authority (FCA) set out the regulator’s current pension priorities when he addressed the Pensions and Benefits UK conference. His speech was entitled ‘A changing landscape’, indicating that firms need to make sure they are aware of any regulatory changes and how they need to change their practices as a result.
He began by outlining the size of the current pensions market, with the FCA being responsible for regulatory supervision of firms that collectively hold £667 billion of assets in pension funds on behalf of 25 million people. There are also 7.2 million annuities currently in payment and close to one million drawdown plan holders.
Directly addressing the ‘change’ theme of the speech, Mr Schooling Latter said:
• In 1997 one-sixth of the UK population were aged 65 or over, but by 2017 it was one-fifth and the proportion is expected to reach one quarter by 2037
• The first state pensions were paid from age 70, and on average this meant they would be paid for nine years, but now those reaching age 65 are expected to live for a further 20 years on average
• People around retirement age have significantly more pension wealth compared to people who were at the same age 10 years ago
• Those born between 1966 and 2000 often face difficulties in saving for retirement, against competing priorities such as saving for a house deposit and repaying debts. This generation are also more likely to be in insecure employment
• Almost 40% of individuals of working age have no private pension wealth at all, a figure that would have been considerably lower a generation ago
• Other major changes are sometimes introduced by the Government, such as the gradual roll-out of auto-enrolment into company pensions and the introduction of the pension freedoms. It is estimated that the number of defined contribution workplace schemes will rise by a factor of five between 2015 and 2030
• Annuity sales fell by more than 80% between 2014 and 2017
The FCA director then said there were five main areas of focus for his organisation at present, which are:
• Defined benefit (final salary) transfers
• Investment pathways
• Value for money
• The overall customer journey
Mr Schooling Latter re-iterated a message that the regulator has given on numerous occasions, namely that most transfers out of defined benefit schemes will not be suitable, and that the FCA is concerned by advice standards in this area. Here he commented:
“DB pensions, and other safeguarded benefits providing guaranteed pension income, give valuable benefits. Most consumers will be best advised to keep them. Advisers should start from the position that a transfer is not suitable. It is deeply concerning and disappointing to see that transfers are still being recommended at the levels we have seen.
“Pension transfer advice for transfers out of DB schemes therefore continues to be an area of intense focus for us. We continue to be particularly concerned that too much unsuitable advice is being given. Our supervisors are already visiting firms where these concerns are highest.”
The FCA director added that the regulator was still considering a ban on contingent charging arrangements, where advisers would only receive a fee if the transfer went ahead.
The FCA carries out investment pathways work as it is concerned that large numbers of people don’t receive advice when navigating the increasingly complex matter of how to access retirement savings. The regulator has therefore proposed new rules on investment pathways that firms offering drawdown must offer to unadvised consumers and has also proposed banning firms from automatically placing pension investments into cash funds.
Mr Schooling Latter then highlighted that the FCA will be repeating its ScamSmart campaign on TV, radio and online in the second half of 2019, designed to stop people losing their retirement funds to criminals.
In explaining how the FCA tries to ensure value for money for pension customers, he then mentioned the charge cap on default funds and the rules the FCA has introduced regarding disclosure of charges.
In conclusion, the FCA director spoke in broader terms of how he hoped to improve the customer journey. On this topic he commented:
“We will undertake a strategic review of the entire consumer pensions journey – taking an in-depth look at what tools are needed to enable people to make good decisions about their pensions.”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article