The pensions and retirement income market is undergoing significant change following the introduction of the pension reforms in April this year. The reforms have required firms to make significant operational and technical changes, and this period of change will continue with the introduction of a secondary annuity market in 2017 and the possibility of significant changes to the pension tax regime being considered by HM Treasury.
Throughout the changes in the market, our goals remain the same – for consumers to have access to products and services that are well governed and deliver value for money, within open, competitive and innovative markets. To support consumers and firms, in line with our statutory objectives, we need to ensure that our regulatory framework keeps up with market developments. We are undertaking a wide range of work designed to identify emerging trends and set out our expectations on the issues that will shape the future of this market. The update will:
- contextualise our ongoing work
- provide an update on the timing of the Retirement Outcomes review, and to
- highlight that we have issued a request for information to firms relating to charges for decumulation pension products
FCA data collection
In September 2015 we published the findings of a data collection exercise across the pensions and retirement income market. The data gives us an important insight into the working of the new pension freedoms in the first three months of their operation. The graphic below summarises the key findings (click to enlarge).
We will continue to track the choices made by individuals by collecting data quarterly from retirement income providers. Subject to data quality, we aim to publish some aggregate-level data outlining consumer product choices, following on from the data we published in September. We will also continue to collect data where we feel it is necessary to help us understand particular issues in the market.
Since the introduction of the reforms, consumers have also had access to the Government’s Pension Wise guidance service (now a government service from MoneyHelper). In September 2015 the Government published statistics on consumer take-up of Pension Wise between April and August 2015. This data shows:
- 6,850 telephone appointments.
- 12,241 face-to-face appointments.
- 1.5 million unique hits on the Pension Wise website, with 90% of Pension Wise users expressing satisfaction with the service.
The Government has also announced that it will be making its core Pension Wise data, including website visits and number of appointments, publicly available and updating it regularly.
The FCA is responsible for monitoring the compliance of Pension Wise, through the designated guidance providers, with the standards we set. We have also published our Pension Wise recommendation policy, which sets out our approach to making recommendations to the designated guidance providers, and the Treasury where appropriate, where we believe a provider has breached the standards we set. As the service is transferred from the Treasury to the Department for Work and Pensions, we will continue to review the appropriateness of our standards and recommendations policy, making changes where necessary.
FCA activities on pensions and retirement income
Our supervisory teams have been monitoring market developments and firm business models closely to see how they have responded to the challenges presented by the new reforms. In particular, how firms have met changing consumer demands and how the protections put in place are working in practice.
We made changes to our Handbook before the introduction of the new freedoms to protect consumers and ensure firms are clear about our expectations. We published rules for firms including the requirement to signpost customers to Pension Wise. To ensure consumers understand the implications of the decisions they are making when accessing their pension savings, we introduced rules requiring firms to give consumers appropriate retirement risk warnings at the point they have decided what action they are going to take.
Over the last six months we have also taken the opportunity to review our rules and guidance, and we have consulted on a range of issues. This consultation paper CP15/30:
- Helps firms understand our expectations about how our rules and guidance operate in the new environment, including a new emphasis on customer communications.
- Brings forward proposals for further changes to our Handbook, such as revisions to retirement risk warnings.
- Invites discussion on areas where we are minded to carry out further work, such as lifestyling investment strategies.
Request for information – decumulation charges
Given our objectives to ensure effective competition and appropriate consumer protection, we are keen to explore the level of charges faced by different consumers in decumulation pension products, and the circumstances in which consumers are required by firms to take advice for those products. We have therefore today sent a request for information to a range of firms offering access to pension products that allow customers to take flexible incomes.
This data collection exercise will help us establish whether there is a significant variation between firms for similar products and services, and the extent to which the charges that consumers face may be complex and difficult to understand. We will also analyse whether higher charges are concentrated among particular pension pot sizes.
We intend to publish a summary of our findings in summer 2016 and feed the results of the exercise into our retirement outcomes review for further analysis.
Retirement outcomes review
The Retirement Income Market Study also identified a number of future risks as the market adapts and develops in light of the reforms. In our Business Plan in April 2015, we announced our intention to conduct the retirement outcomes review as a follow-up to the market study. In October 2015, as part of our consultation paper CP15/30, we set out the key issues that we were intending to consider. We have engaged with stakeholders on the shape and scope of the review through stakeholder roundtables and through written responses to our October publication.
We have previously stated that we intend to launch this review in early 2016. Having considered developments in the market since the introduction of the pension reforms, other FCA work and wider initiatives, and the feedback we have received from stakeholders, we now anticipate that we will launch this review in the second quarter of 2016.
By revising the timing of this review, we will be able to sequence it effectively with other FCA work and wider initiatives, including the Financial Advice Market Review, our ongoing consultation on changes to our pension rules and guidance, our data collection exercises, and the Government’s next steps on exit charges and pension transfers. It will also allow us to use a longer data set for our review, providing us with a more robust picture of how the market looks following early reactions to the pension reforms.
In the meantime, we will continue to monitor the market through our ongoing data collection and analysis exercises. We are also updating consumer research originally undertaken as part of the Retirement Income Market Study, and continuing our engagement with stakeholders to develop our thinking.