Their aim is to reduce the complexity and increase the transparency of charging structures between different pension products. The FCA is seeking feedback and is keen to explore any alternatives to its ideas with interested parties.
In this article, Craig Muir, Senior Business Development Manager at Royal London, summarises the key points of the feedback statement and considers the implications on the future of non-workplace pensions.
The FCA has found that many consumers aren’t engaged in pension decisions or aware of charges they’re paying. This lack of engagement, combined with complex and confusing products and charges, has led to a lack of competitive pressure in the non-workplace pensions market.
There are 12.7 million non-workplace pensions accounts, more than 100 providers or operators (life companies, investment managers, platforms and specialist operators) and around £470 billion assets held or invested1. So similar consumers can pay very different charges and the FCA have stated those paying the highest could be losing tens of thousands from their pension over their working life.
Non-workplace pensions refers to Individual Personal Pensions, Stakeholder pensions, SIPPs, FSAVCs, S32s and RACs. You’ll have noticed decumulation products such as income drawdown aren’t included in this list of “non-workplace pensions”. That’s because they’re covered as part of the Retirement Outcomes Review - you can read the latest rules and guidance in the FCA’s Policy Statement PS19/21.
My gut feel is this is mostly aimed at older higher charged pension products and SIPPs where there can be a raft of different charges, which makes it difficult for consumers to compare on a like for like basis. If you’ve been following the Retirement Outcomes Review, you’ll notice a striking similarity between the new rules and guidance for decumulation products and the proposals for “non-workplace pensions”.
The FCA has outlined a package of potential measures to protect consumers – these could include requiring providers to offer one or more investment solutions, reducing charge complexity and increasing transparency, so that consumers better understand the impact of charges on their savings.
They’re looking for feedback on measures to introduce default funds to protect consumers who do not or cannot engage with their investment decision, and to introduce simpler, more transparent charges.
Let’s look at this in a bit more detail: