In a recent market study paper, the Financial Conduct Authority (FCA) laid out their final proposals on the information that should be delivered to people approaching retirement and how it should look and feel.
In addition, during 2015 there will be a considerable amount of research and consultation undertaken by the FCA with a view to introducing the new rules in 2016.
So what will provider retirement communications actually look like in the future? Here's a brief summary of the 5 remedies outlined in the FCA's paper.
Providers will have to include an annuity quotation comparison so that people can see what they could get on the open market compared to the provider's rate. This would also include caveats about how those in ill-health might benefit from enhanced annuities.
While we think this is a step in the right direction, perhaps including the names of the top providers instead of a generic figure would further encourage shopping around.
The FCA identified that when information on retirement options is given to people, it can often be framed in such a way that discourages people from shopping around or encourages a purchase from the current provider.
The wording of retirement information packs will be redesigned to push people firmly towards shopping around, guidance, and advice. In addition, new rules of thumb will be considered to help people understand the long term implications of their decisions.
So someone who wants to take drawdown, for example, might be told how long their money might last if they take a certain level of income given a certain level of investment growth.
At the moment, it's widely agreed that retirement information isn't hitting the mark in a lot of cases. Starting in 2015, the FCA will conduct behavioural research with interested parties to establish when and how conveying retirement information to people can be most effective.
It's expected that the retirement packs of the future will be more concise, set out the options in a way that people understand, and of course encourage people to shop around.
In addition, the current ABI code of conduct on retirement choices will be translated into the FCA's rules to ensure consistency of approach.
With auto enrolment, we know that people will end up with several small stranded pots as they change jobs during their working lives. Automatic transfers will help tackle this problem but there is still a risk that people will lose track of their pensions.
So the FCA is proposing a 'pensions dashboard' where people can log in to a portal and see all their pensions - including state pensions - in one place. It’s expected that this will be built over the next few years and should mean that people can make more informed decisions.
The new retirement options available to people make it more important than ever to ensure the market works properly for consumers.
The FCA are introducing new monitoring processes with a view to preventing market failure. This will include, for example, gathering information on product sales by type and channel, number of defined benefit transfers and the amount of people giving up guarantees in favour of freedom.
They will also continue to monitor the Pension Wise service, and work with the Pensions Regulator towards a joined up approach to market monitoring and reporting.
The hope is that in the future, retirement packs will better provide people with the information they need to make informed, risk managed decisions.
This won't work all the time and there will still be a considerable demand for advice. Because as the Association of British Insurers points out "...human behaviour is complex, hard to predict, and hugely dependent on context".1
1 Association of British Insurers 'Freedom and Choice in Pensions: A Behavioural Perspective'.
Business Development Manager
A self-confessed 'Pensions Geek', Jamie reads Pensions Acts for breakfast. He's spent the last three years working on automatic enrolment and has talked to hundreds of advisers and employers about how they can best prepare.