The transparency of charges is a concern, and to that end the FCA wants providers to show clients a one-year charge metric in pounds and pence across all relevant disclosures. This one-year figure will be included in the creation of a drawdown comparator to help those wanting to shop around.
This is going to be very difficult for some providers to administer, and there will need to be some practical guidance to cover what is and is not included. Providers are all very different, with different charging structures, so assumptions about what the client will want to do in that year will need to be made.
The FCA is not proposing a charge cap, but wants to keep the option under review while the market continues to evolve. This appears to be a very good move: the market is still changing from one where drawdown was virtually all fully advised, to one where more people are either choosing to go it alone or just not seeking help. This may lead to simpler offerings that require less intervention from providers and so could be at a lower cost to the client.
Improving engagement
The FCA is also proposing that wake-up packs are sent at the age of 50 and then every five years until all benefits have been crystallised. The wake-up packs should include a headline one-page document containing key information, including fund value, guarantees and prominent details about Pension Wise. In addition, the FCA wants the wake-up packs to include pronounced risk warnings.
Wake-up packs are sometimes the first time a person considers what they are going to do with their funds at retirement. These will become more important as we move to a world where money purchase pensions constitute the majority of people’s retirement funds. Getting this right will be key to ensuring good outcomes for all in retirement.
Meanwhile, the Financial Guidance and Claims Act 2018 requires the FCA to make rules stating that firms must ensure a consumer has either received appropriate pensions guidance or opted out of receiving it before the company proceeds with an application to access or transfer their pension savings. The FCA will need to consult with the Single Financial Guidance Body when it is formed before consulting more widely on any rule changes.
These proposals may not improve guidance for consumers, particularly in light of the ‘second line of defence’ risk-warning process that providers already have to go through for non-advised clients, but assuming the changes aren’t too onerous then every little helps.
Changes to the annuity information prompt are also being proposed. These aim to ensure those requiring quotes for a certain level of income can truly benefit from these prompts. In addition, the FCA is putting forward a requirement that providers ask consumers basic questions about their health and lifestyle to determine whether a customer is eligible for an enhanced annuity. They must use this information when generating the quote for comparison that is presented in the annuity information prompt.
