You can view the Review here: https://www.fca.org.uk/publication/consultation/cp18-17.pdf#page=4
Key points:
Retirement wake-up packs to be overhauled and issued earlier (from age 50) and more often (every five years)
Firms will also be required to provide retirement risk warnings alongside wake-up packs
Savers will receive a one-year charges figure prior to entering drawdown
The regulator is also consulting on a number of market interventions, including:
Requiring providers to offer ‘default investment pathways’ for non-advised drawdown savers
Requiring drawdown investors to make an active choice to be in cash
Requiring firms to disclose the charges consumers actually pay on an annual basis
It is also encouraging the Government to decouple Tax Free Cash from other pension decisions.
Tom Selby, senior analyst at AJ Bell, comments:
“The pension freedoms announcement in March 2014 was a shock to everyone in the industry – the FCA included. More than three years after the reforms were introduced, today’s report represents the regulator’s first serious assessment of how the market is working.
Default investment pathways
“Given the level of pressure exerted on the FCA from various quarters, it felt inevitable some form of intervention would be proposed with the aim of protecting non-advised drawdown savers. We are pleased the FCA hasn’t jumped in with both feet in this regard and will instead consult on the idea of introducing default investment pathways.
“This is absolutely the right approach because default investment pathways that are not a personal recommendation would be a very significant development and needs careful consideration. Different people have very different personal circumstances and so there needs to be full consideration given to how investment pathways will be implemented and monitored over time.
“Successful navigation of drawdown requires engagement and care needs to be taken that creating blanket defaults doesn’t simply hard-wiring inertia into the system.
Wake up packs
“The FCA is right to focus its immediate attention on a long overdue overhaul of retirement wake-up packs. Indeed, we believe much of the literature issued to customers is barely read and poorly understood, and have long called for a fundamental rethink in this area. Our own research points to a lack of engagement and understanding among many drawdown investors, with accessing tax-free cash often the priority.
“The significant emphasis placed by the FCA on charges and value for money is to be welcomed, and we will work with the regulator to ensure these changes create a simpler retirement communications regime which encourages better levels of engagement.”
Decoupling Tax Free Cash from other pension decisions
“We agree with the FCA that customers who simply want their tax-free cash shouldn’t be forced to make a decision about what to do with the rest of their retirement fund (at the moment, any ‘decoupled’ payment would incur an unauthorised payment charge). If someone doesn’t want to start taking an income, it seems odd that they are required to enter drawdown or buy an annuity in order to get their 25% tax-free lump sum.
“It would therefore be a positive development for savers if this unnecessary requirement was removed.
“Such a move will likely require a rethink of the risk warnings these customers are given, as they will no longer be making a retirement income decision with the rest of their fund.”