Whatever your view of the Financial Conduct Authority (FCA), one thing they are not is idle.
The raft of discussion papers, feedback statements, consultation papers, policy statements etc is relentless. On 30 July we techies had a particularly exciting time when the FCA released three papers relating to pensions all on one day.
These were the latest policy statement from the retirement outcomes review (ROR) (PS 19/21), the consultation paper on the changes to pension transfer advice (CP19/25) and a feedback statement on non-workplace pensions (FS19/5).
These three pieces of work together give us a good indication of the direction of travel from the FCA.
Taking ROR first, the policy statement confirmed the introduction of investment pathways to combat the danger of people defaulting into cash when they access their pension. This is understandable in the context of non-advised clients in legacy or workplace pensions who are disengaged and in real danger of defaulting into cash for a lengthy period.
It is more questionable whether it’s required for SIPP clients who by definition are more engaged and are used to making their own investment decisions in the accumulation phase.
But the FCA has gone even further and made it a requirement for advisers to consider the pathways and demonstrate that any other investment is more suitable before they can make any other recommendation to a client.
Turning to the DB paper next, here the headlines have revolved around the proposed ban on contingent changing, but also key is that any recommendation to transfer by default will be to the workplace pension. In order to recommend a transfer elsewhere advisers will need to demonstrate that the new scheme is “more suitable” than that workplace pension.
Last we have the paper on non-workplace pensions. This is only at the feedback statement stage, but the proposal is to extend investment pathways into the accumulation phase of personal pensions too. This would create a default pathway (or pathways – yet to be decided) with lifestyling. Like with drawdown pathways the proposal is that advisers will also have to consider these pathways first, and be able to demonstrate why any alternative investment recommendation was more appropriate. The consultation paper on this is due out Q1 2020, so watch this space.
So, we’re looking at default investment pathways in drawdown, the default pension scheme always being the workplace pension, and default investments for accumulation in all pensions.
Rather than tackling the issue of disengagement with pensions, it could be argued that the FCA have accepted this is the status quo and that the best way of protecting consumers is to default them into investing.
The danger of this is that it could be self-perpetuating and actually increase disengagement further. Those that may have taken more interest, or could have been nudged into making decisions appropriate for them, may come to believe they don’t need to bother now because it’s all done for them.
It looks like pension advice will increasingly become the enclave of high net worth clients, and those with more moderate needs will have even less desire or inclination to seek out help.
Lisa Webster is senior technical consultant at AJ Bell