FCA to review retirement product complexity and non-advised sales

The FCA has today published the Terms of Reference for its Retirement Outcomes Review which will assess the impact of the pension reforms on competition in the market.

Related topics:  Retirement
Rozi Jones
14th July 2016
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"It’s crucial that the market develops in a way that allows consumers to engage with their options, shop around, and switch providers where appropriate."

The review will explore whether competition is working effectively following the introduction of the pension reforms, focusing on shopping around and switching, non-advised customer journeys, firm business models and barriers to entry, and the impact of regulation on retirement outcomes.

The FCA says it has concerns that increased flexibility, product complexity and opaque charges could make it harder for consumers to compare products and shop around, weakening competitive pressure on firms.

In its Terms of Reference the FCA said: "Given what the FCA already knows about the difficulties in shopping around for annuities, and the problems identified in the Retirement Income Market Study that consumers had in getting a good deal when shopping around for an annuity, we want to understand to what extent consumers can compare and choose between the larger range of products/options now available to them. We want to understand whether they can easily compare products, shop around, switch providers where they are not receiving what they want, and make good, informed, decisions.

"As firms adapt to the changes we are seeing in this market, we want to explore what business models and products are emerging and the impact on competition in this market. For example, how might firms’ business models impact on consumer engagement and switching, and are there barriers to entry for challenger firms? We will also look at international parallels from markets where reforms have taken place."

The FCA will also assess regulation that is "overly burdensome and may constitute disproportionate barriers to entry or prevent useful product innovation".

Alongside the Terms of Reference, the FCA has published a market update that provides further information on the activities being undertaken on pensions and retirement income.

This update includes the results of the FCA’s recently completed review into how firms are signposting the availability of Pension Wise. The review found that the majority of firms were meeting the FCA’s requirements, but said there were still a number of areas where improvements could be made.

The FCA said it was "encouraged" to see some firms taking active steps to raise awareness of pension scams among their customers which other firms could consider adopting.

Christopher Woolard, Director of Strategy and Competition, commented: "In our 2016/17 Business Plan, we committed to looking across the pensions sector to ensure our policies support the fair treatment of customers and encourage competition. Deciding how to use pension savings is one of the most important decisions people will make.

"For a competitive and innovative market, it’s crucial that the market develops in a way that allows consumers to engage with their options, shop around, and switch providers where appropriate. We also want firms to compete hard for business, offering good outcomes for consumers through lower prices, products and services that meet customer needs, better customer service and wider choice.

"Since the introduction of the pension reforms there have been a number of key market developments. We want to assess how competition is developing in the retirement income market by investigating how firms and consumers have responded to the new freedoms."

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