Pension freedoms changed the whole retirement planning landscape.
The regulator can lament the speed of introduction – but over five years since the freedoms were announced, some regulatory policy looks like an attempt to bring us back to a world gone by, rather than addressing the real problems faced by today’s clients, planning up to and throughout their retirements.
Let’s consider some examples from the ongoing retirement outcomes review (ROR) and the recent Financial Conduct Authority (FCA) non-workplace pension scheme discussion paper (FS19-5).
In FS19-5 the FCA is considering measures to protect clients in accumulation, “who do not or cannot engage with their investment decisions”.
The potential remedies discussed look similar to those that are coming into force imminently for clients in the retirement income phase. That is, further extension of disclosure around costs and the possibility of investment pathways, this time for those building their pots.
I’ve previously covered issues with investment pathways in drawdown and how they might affect advised clients, and admit that if they were introduced in accumulation then implementation should be easier.
But for a provider to design and offer someone an investment pathway, there needs to be an acknowledgement of what they are looking to achieve and what is planned for the money in the future.
What provider wants to innovate in this area when faced with an increasingly blurred line between guidance and a personal recommendation, with the related need for a suitability assessment?
When a firm removes a fund from a best-buy list, it can provide a general update online but communicating with clients who actually hold that fund to inform them of the change and reasons is likely to be viewed as a personal recommendation.
Equally, adding even more to product disclosure cannot keep being the answer for how we improve engagement.
Add another page!
In the ROR, the regulator acknowledged that “wake-up packs” were often confusing and contained too much information. The policy answer? Add on yet another page to the front of the pack in an attempt to summarise the complex information within.
This really felt like a missed opportunity – rather than tackle the issues head-on and reset what disclosure needs to be and what it could look like if we started from scratch with the objective of keeping things simple – it feels to me like the can has been kicked further down the road.
In a world of freedom and choice as to how we can plan for retirement, why is there such a difference between what is required for a defined contribution pension and other products that can be used to complement them?
Beyond a non-personalised summary table and warnings against early withdrawal charges for Lifetime ISAs, there is no requirement for ISAs and bank accounts to say in 10 years your account might be worth £x and could buy you an income of £y.
Nor do we have to tell clients not to spend all their pot at once when they try to access what politicians and the media have been telling them is their own money for years.
Some view the pensions dashboard as paving the way for improving engagement – having simple information on all pots and schemes in one place could do just that but unfortunately, it is a long way off and will need significant industry effort (in terms of time and cost) to get it over the line.
The regulator clearly feels like it has been asked to deal with wide-ranging policy reforms at too fast a pace.
When we respond to the discussion paper by 8 October, we will be asking it to reset the information disclosure rules rather than adding to existing requirements, as well as confirming how offering investment pathways in accumulation will definitely not be straying into the area of a personal recommendation.
Charlene Young is senior technical consultant at AJ Bell