Wednesday, 12 July 2017 10:07

FCA’s pension intervention a 'regulatory cry for help'

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Tom McPhail, head of policy at Hargreaves Lansdown Tom McPhail, head of policy at Hargreaves Lansdown

Today’s FCA report on the retirement reforms “looks like a regulatory cry for help”, a pensions expert says.

The FCA suggested ‘intervention’ such as price caps and governance committees may be necessary in some areas following the advent of the pension freedoms in 2015.

Consumers are increasingly accessing drawdown without taking advice, the body found. Before the freedoms, 5% of drawdown was bought without advice compared to 30% now.

The report stated: “Drawdown is complex and these consumers may need more support and protection.”

The FCA review also found many consumers have fully withdrawn pension pots to move into savings elsewhere, partly driven by lack of trust in pensions.

Tom McPhail, head of policy at Hargreaves Lansdown, said: ‘This report looks like a regulatory cry for help; the FCA seems to be trying to put the pension freedom genie back in the bottle.

“The liberalisation of pensions has proved very popular with investors but this regulatory review highlights some of the shortcomings in the system.

“The FCA is looking at a spectrum of paternalistic interventions, such as price caps and governance committees but we’re not sure this is in consumers’ best interests.

“They have expressed concern about a lack of competition in market place, yet the majority of the measures proposed here seem likely to stifle competition: better investor engagement is likely to lead to better competition. We’d like to see more emphasis placed on helping investors make good decisions for themselves.”


Fiona Tait, technical director at Intelligent Pensions, said: “In many ways the FCA’s findings are reassuring. People are not, in the main, cashing in pension pots and leaving themselves with nothing to live on in later life. Using smaller pension pots to pay off debts or otherwise rearrange finances makes sense especially if, as the results indicate, they have other sources of retirement income.

"I share the concern that people are withdrawing pension money to re-invest elsewhere, giving up the favourable tax treatment given to pensions and in many cases moving to cash and deposit-based investments which are paying particularly low returns in the current market.

“I am not however convinced that there is a need for lots of product innovations, at least in terms of the wrappers available. Take up of “third-way” plans remains low and the increasing popularity of drawdown suggests that what we need are better ways to help individuals manage their drawdown plans rather than complicated new product structures. The FCA’s point about improving tools and services is spot on.”

The FCA report also found:

· Consumers who access their pots early without taking advice typically follow the ‘path of least resistance’, accepting drawdown from their pension provider without shopping around

· Many consumers buy drawdown without taking advice but may struggle with the complexity of the decisions they have to make

· Providers are continuing to withdraw from the open annuity market

· There is limited innovation for mass market consumers

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