FCA makes small step towards its freedoms fix

The regulator's latest set of recommendations from the retirement outcomes review have been a belated response to the shock pension freedoms announcement in the March 2014 Budget

The regulator’s first meaningful act of 2019 was to publish its latest set of recommendations from the retirement outcomes review.

This is essentially the regulator’s belated response to the shock pension freedoms announcement in the March 2014 Budget.

The primary aim is to ensure people who enter drawdown without taking regulated advice end up with a decent, if not perfect, retirement income solution.

The answer the Financial Conduct Authority (FCA) has come up with is three-pronged. It said savers should make an active decision about investing more than half their fund in cash; it will shake up retirement ‘wake-up packs’, designed to encourage better engagement; and it will mandate providers with 500 or more members a year entering drawdown to offer ‘investment pathways’.

These pathways will be designed to cover four retirement scenarios:

  • Those who have no plans to touch their money in the next five years.
  • Those who plan to set up a guaranteed income (annuity) within the next five years.
  • Those planning to start taking a long-term income within the next five years.
  • Those planning to take all their money out within the next five years.

The broad brush nature of these categories means for most people the solutions offered to them might not be appropriate. For example, a person planning to take their money out within a week would be directed to exactly the same fund as someone planning to exhaust their fund in four years.

It is also not yet clear what, if any, mechanisms will be in place to encourage reviews when someone’s circumstances change, or where liability will lie in the event of a complaint.

These questions and more will need to be answered if investment pathways are to truly improve member outcomes.

Tom Selby is senior analyst at AJ Bell

The regulator’s first meaningful act of 2019 was to publish its latest set of recommendations from the retirement outcomes review.

This is essentially the regulator’s belated response to the shock pension freedoms announcement in the March 2014 Budget.

The primary aim is to ensure people who enter drawdown without taking regulated advice end up with a decent, if not perfect, retirement income solution.

The answer the Financial Conduct Authority (FCA) has come up with is three-pronged. It said savers should make an active decision about investing more than half their fund in cash; it will shake up retirement ‘wake-up packs’, designed to encourage better engagement; and it will mandate providers with 500 or more members a year entering drawdown to offer ‘investment pathways’.

These pathways will be designed to cover four retirement scenarios:

  • Those who have no plans to touch their money in the next five years.
  • Those who plan to set up a guaranteed income (annuity) within the next five years.
  • Those planning to start taking a long-term income within the next five years.
  • Those planning to take all their money out within the next five years.

The broad brush nature of these categories means for most people the solutions offered to them might not be appropriate. For example, a person planning to take their money out within a week would be directed to exactly the same fund as someone planning to exhaust their fund in four years.

It is also not yet clear what, if any, mechanisms will be in place to encourage reviews when someone’s circumstances change, or where liability will lie in the event of a complaint.

These questions and more will need to be answered if investment pathways are to truly improve member outcomes.

Tom Selby is senior analyst at AJ Bell

Source: FCA retirement outcomes review

Source: FCA retirement outcomes review

Source: FCA retirement outcomes review

Source: FCA retirement outcomes review

Source: FCA retirement outcomes review

Source: FCA retirement outcomes review

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