FCA moots intervention on pension freedoms

The FCA has set out proposals to intervene in the post-pension freedoms market including defaults and charge caps for non-advised drawdown and “decoupling” tax-free cash from the rest of the pension pot.

The regulator has today published its interim findings from its retirement outcomes review, which launched a year ago.

It marks the first comprehensive market study since pension freedoms were rolled out in April 2015.

The FCA says while consumers have welcomed the choice on offer from pension freedoms, it has found competition is not working well for consumers who do not seek advice.

It is also concerned about emerging issues in the non-advised drawdown market, with savers potentially struggling to deal with the complexity of investment decisions.

The regulator has set a package of potential measures to tackle these concerns.

These include:

  • additional protections for consumers who buy drawdown without advice
  • proposals to enable consumers to access some of their savings early without having to move the rest into a drawdown product
  • proposals to make it easier to compare and shop around for drawdown products

It has suggested default investments for consumers who do not or cannot engage with investment decisions, where charges would be capped.

The FCA also highlights pension schemes that cannot facilitate drawdown and require savers to move into drawdown to access their pot.

It says it is worried consumers may pay higher charges or choose unsuitable investment strategies as a result.

The FCA says: “We consider the decision to access tax-free cash early should be ‘decoupled’ from the decision about what to do with the remainder of the pot.

“This will ensure consumers only have to make a choice about their retirement income product at a time when they are ready to do so, for example, when they are considering fully or partially retiring.”

The regulator adds: “Ahead of the final report, we will work with the relevant stakeholders to explore what changes would have to be made to break this link and the potential costs and benefits of doing so.”

The FCA has asked for feedback on its findings and recommendations and will look to publish a final report next year.