Is three years a long time in financial services?
On one hand it seems like an age since pensions freedoms were introduced in April 2015. My fundamental worry is that the market framework should have been developed by now to help the 1.5 million consumers who have already made their retirement choices.
On the other hand, three years is just a blink of an eye, and we are only just now beginning to understand exactly what these changes mean and how this market could evolve.
As part of this quandary, the FCA recently published its final report in its Retirement Outcomes Review. In it, the FCA analyses the market, focusing on the non-advised consumer.
The regulator is concerned about the growth of this population, that many do not understand their investment choices and decisions, and that a third of non-advised consumers are invested solely in cash.
The FCA has suggested several potential remedies, and is far down the track in introducing some of these changes.
In its latest consultation (issued alongside the Retirement Outcomes Review final report) it outlines the changes it wants to make to wake-up packs. It proposes that wake-up packs are first issued first age 50 and then every five years until the pot is fully crystallised.
It also wants to change the key features information, and to issue this every time a consumer moves into drawdown, even if it isn’t from a different product. We should get the final rules for these proposals in January 2019, meaning they should be implemented by the end of next year.
There are a host of other solutions the FCA would like feedback on. These include pension providers developing investment pathways for non-advised consumers, each specifically linked to a different investment objective. It also wants to rule out using cash as a default investment choice – instead consumers must make an active decision to invest solely in cash.
Finally, it would like the annual statement to show in pounds and pence what the actual charges were for the previous year.
Once it has worked up these proposals, the FCA will publish a second consultation on the detail in January next year, and the final rules by July 2019 with a view to implementing these sometime towards the end of 2019/20.
While that seems like a long time since the introduction of pension freedoms – almost five years – I accept it’s important we get the market structure right. But these proposals have to be sturdy enough to make sure non-advised consumers get the support they need.