Retirement Outcomes Review - part 1

28 May 2019

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The FCA published policy statement PS19/1 at the end of January 2019 detailing the first part of its package of remedies to address the issues they identified in the retirement market. Here we take a look at what the main changes are.

Wake up packs

The FCA is making changes to ‘open market options statements’ or wake up packs from 1 November 2019.

FCA PS19/1

Read the policy statement.

Customers must be provided with an open market options statement at age 50, 55 and then every five years until they’ve accessed their entire pension savings.  This is in addition to the current rules for providing the statement.

The open market options statement issued at age 50 must include a single page summary and relevant risk warnings.  At all other ages, the statement must also include the MAS guide ‘Your pension: it’s time to choose’ and details on any guarantees applying to the pension.    

The summary document provides key information on the pension to help the customer shop around.  The risk warnings tell the customer key things they should consider when making a decision about their retirement.

Our view

Providing regular open market options statements is intended to increase customer engagement in the retirement planning process. Our view is that this is too late as it leaves limited time for customers to save more into their pension.  We believe that engagement needs to start much earlier and should continue throughout the customer’s working life.

Receiving multiple statements could result in customers thinking that they must take their pension savings now.  So instead of saving for longer, they could end up taking their pension savings a lot earlier, resulting in financial hardship in later life.  This would be an unintended consequence of the change.

Annuity sales

The FCA is also making changes to annuity sales.

Providers must ask customers interested in buying an annuity questions to determine if they’re eligible for an enhanced annuity and use this information to produce a market leading annuity quote. 

New annuity information templates are being introduced for income-driven annuity quotes.  These templates compare the difference in the buying price rather than the income and highlight the lowest cost for the requested level of income.

Our view

Our view is that all eligible customers should be offered an enhanced annuity as standard.

Many providers, including Royal London, already offer eligible customers an enhanced annuity from a panel of all the main annuity providers in the market.

For the few providers who don’t currently offer enhanced annuities, this change will have a positive effect for customers.

Drawdown and UFPLS disclosure

The FCA is making changes to drawdown and UFPLS disclosure from 6 April 2020.

A front page summary of key information is being added to key features illustrations for drawdown and UFPLS.  The summary includes information about when the customer’s pension savings are projected to run out and their first year’s charges.

Drawdown key features illustrations are being brought in line with other illustrations and must be produced in real terms, rather than monetary terms.

Customers should be provided with a key features illustration and any other relevant information the first time they designate funds to drawdown and the first time they take an income or UFPLS payment.  For further income and UFPLS requests, the provider needs to give the customer relevant information to help them understand the impact of the request on their remaining pension savings.

Providers must give customers enough information to review their decision every year from the date of first taking PCLS, income withdrawals or UFPLS payments.

Our view

The summary page of key information is intended to make the cost of drawdown products clearer and comparisons easier.  But drawdown is a complex product and most customers will struggle to compare products.  This is where advisers can provide a valuable service to help them choose the product that best meets their needs. 

About the author

Robin Nimmo

Proposition Strategy & Insight Manager

Robin has worked for Royal London for over 30 years with experience in marketing, research, technical support and product development. He currently specialises in the savings and at retirement markets.

Last updated: 28 May 2019

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The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.