The Financial Conduct Authority says it is concerned that “consumers often fail to make the most of their pensions”. It has launched a Call For Input, aiming to understand consumer behaviour at key points in the pension saving journey in order to improve pension outcomes.
The regulator notes the shift to defined contribution, as opposed to defined benefit, pension schemes; as well as the increase in the number of ways a pension can be accessed; the rise of self-employment and the gig economy; and the rise in workplace pension participation as a result of auto-enrolment. The paper notes two significant issues with the way pension savers use their auto-enrolment scheme:
- Most savers make the minimum default contribution of 8%, including the employer contribution
- Many savers rely on others to decide on where to invest their money, with 99% of all savers staying within their default fund
The three principal adverse outcomes the FCA has seen are:
- Consumers fail to make decisions that optimise their pension saving
- Pension savers remain in poor performing products, often originally chosen by their employer
- Many people are susceptible to pension scams
Regarding decision making, the FCA cites data from its Financial Lives Survey 2020. Of those with a defined contribution pension, 38% do not know how much they are contributing, 53% have not reviewed their pension during the last 12 months and 31% don’t even know the name of their provider.
The regulator now says it wants to understand how it can help at key points in the pension savings journey, in order to improve pension outcomes. This includes identifying the best points at which to offer consumers support, knowing who is best placed to provide support and how this can be done.
The paper says it believes these are five key decisions that a pension saver needs to make:
- When to start saving
- How much to save
- Where to invest
- How and when to seek pension advice
- How and when to access their savings
Some consumer decisions relating to these five issues are ‘conscious’, but others are ‘unconscious’ decisions, like being automatically enrolled and remaining in the default fund.
The FCA also notes that many retirement savers have multiple jobs during their career, leading to them also having multiple pension pots. This may mean that savers receive lots of different communications from providers, adding a further level of complexity. Some of the pots will be small and consumers may lose track of their pots, with pension providers not necessarily equipped to identify all the pots held by individual consumers.
The FCA invites responses to the Call For Input until June 30.