The Committee has conducted a series of inquiries into the operation of the freedoms, and made recommendations for protecting retirement savers against scammers, as well as creating a new,low cost default decumulation pathway.
The publication of the Review is welcome, but progress is very slow. The initial package of remedies is proposed to be in place by July 2019 – three years after the launch of the Review. The proposed charge cap would take another year after the pathways are introduced, but even that is now subject to yet further consultation.
Key points to note from the Review
- The FCA findings show that charges are on average higher than during accumulation – there appears to be no valid defence for that.
- Average total charges vary between providers, from 0.4% to 1.6%.
- Products can have as many as 44 different charges linked to them.
- The FCA says that “firms should challenge themselves on the level of charges and use 0.75% on default arrangements in accumulation as a point of reference”. But the FCA wants to give providers a year if and when investment pathways are introduced. The Committee recommended a 0.75% cap in its report.
Poor outcomes for consumers
- Over half (52%) of the fully withdrawn pots were not spent but were transferred into other savings or investments - primarily cash bank accounts. These findings have changed little since the interim report - 52% of pots now withdrawn, vs 53% in the interim report. It appears that risk aversion in pension freedoms continues to be a major problem.
- There is weak competitive pressure - 94% of consumers who accessed their pots without taking advice accepted the drawdown option offered by their pension provider.
- 60% of consumers who chose drawdown without advice did not know, or were not sure, where their money was invested.
Better informed consumers
Drawdown investment pathways
The FCA is consulting on a proposal that providers offer three ready-made drawdown investment pathways architecture “broadly appropriate for consumers with fairly straightforward needs”. The FCA has endorsed the Committee’s recommendation that these should have independent governance committees.
DB pension transfers
FCA confirms that it will report on these, including the Committee’s recommendation of banning contingent charging for them, in the autumn.
Commenting on the Review, Rt Hon Frank Field MP, Chair of the Committee, said:
“The FCA reports devilishly glacial progress, albeit now in the right direction. Report after report shows that inadequate protections are in place for too many savers. Yet again, the FCA has found that people are losing out in tax and investment returns by hiding their pensions in cash bank accounts. Yet again, the FCA has found that people are being ripped off by unjustifiably high and complex charges. But the FCA wants another year to mull over a charge cap while life savings are shamelessly milked. There has been more than enough warning. They should just introduce it.
“We are pleased that the FCA has is taking forward many of our recommendations. Single page pension passports are of proven benefit to consumers. Consumer-friendly investment pathways for drawdown customers, overseen by independent governance committees, would rightly be widely welcomed. We hope and expect the FCA will announce a ban on contingent charging for transfers in their autumn report. Their instincts are right. We just want them to get on with it.”