FCA Retirement Outcome Review

Feedback on CP18/17 and FCA final rules and guidance.

On the 28th of January 2019, the FCA released their Policy Statement which outlines the new rules and guidance on what they say is the first package of remedies from the Retirement Outcomes Review (ROR) following their Consultation Paper CP18/17.

The FCA’s Aim

The FCA are introducing ‘wake-up packs’ for people approaching retirement so that they reach consumers at the right time to inform their decision and therefore this will be more useful by making the costs of drawdown clearer and comparisons easier to review.

The FCA have gone ahead with their proposal and have decided that a pack should be given at the age of 50, then again 4-10 weeks before the age of 55, and then every 5 years until the point where the client has fully crystallised their pension fund.

The new rules and guidance cover:

  • The ‘wake-up packs’ – their timing, their content, their reminders and also the additional retirement risk warnings;
  • Information provided to consider about annuities and eligibility for enhanced annuities; and
  • Changes to make the cost of drawdown products clearer and more comparable.

This is a more straight to the point of what is happening and what you need to know, but with a bit more detail than the blog we did so you can have a better understanding of what is happening and why.

Content of the pack

Now this is split into a few sections:

  1. Single page summary document – at 50 the client will receive their first pack which should only consist of a single page summary document which sets out the key information. It should not include the projected future income or savings targets as they believe this could cause confusion for consumers. They have not prescribed a template (shock).
  2. Money advice fact-sheet – The FCA have decided not to require that the disclosures and the factsheet are amalgamated.
  3. Other information to help consumers make informed decisions – firms should disclose, separately, from the ‘wake-up’ pack, any other information that would enable customers to make an informed decision about accessing their pension savings.
  4. Marketing material – The FCA have clarified what counts as marketing material and what should not be included in the packs.

The language used should be clear and provided in a durable format, which needn’t be paper-based.

Risk warnings

Any other information to help consumers make informed decisions that would enable customers to make an informed decision about accessing their pension savings should be provided alongside of the summary document, but should not draw away from it.

The aim is to keep the packs simple and each ‘wake-up’ pack should contain prioritised generic risk warnings on a single side of A4. The documents will have specific risk warnings for consumers between the age of 55 and the intended retirement date saying that accessing the pension fund at that point may not be the best option.

Their proposed changes were to have the packs include a clear, prominent recommendation to use the pensions guidance, and a statement that appointments with Pension Wise are available and that marketing material for a pension decumulation product should not be included with the reminder.

Enhanced Annuity

The FCA also found that from consumers who bought a standard annuity from their existing provider, a large percentage may have been eligible to buy an enhanced annuity.

The proposals wanted to find a way to require firms to ask those consumers who express an interest in buying an annuity, questions to decide whether they are potentially eligible to buy an enhanced annuity.  This has sparked new guidance in COBS 19.9.6B G which sets out a number of major health and lifestyle areas that firms may consider asking questions on to assess eligibility. The list is not exhaustive, nor does it set a minimum level.

The FCA has fallen short of giving firms a set of questions to ask consumers, but suggested several major health and lifestyle areas that firms may consider asking about as guidance.

Key Facts changes

The report highlights the intended changes to the current KFI layout given to clients in a new contract when they enter drawdown, and when a client, uses an existing contract to move funds into drawdown, withdraws pension income for the first time (if this happens later), or withdraws an UFPLS payment. 

The intention is to make the key elements more prominent for clients with key facts illustrated on one front page of a larger and more detailed document. This will show values in cash (pounds and pence) and what the money in the pot today might buy in the future.

Communication to clients (ongoing information)

The FCA are proceeding with their proposal to require firms to provide regular communications for consumers who have not taken an income. They have clarified the information they want firms to send to consumers in annual statements, to take account of the feedback received.

Firms will now be expected to invite clients to consider reviewing their pension product choices and their investment choices, and consider the option of taking regulated advice or seeking guidance.

The future plans under review.

With the focus still on making pensions simpler, the FCA are consulting on having ready-made investment plans for client’s pensions, (“investment pathways”) and making pension charges more transparent and predictions easier to compare.

They are considering options to allow a client to choose one of 4 drawdown options without for their pensions, and be offered an investment solution based on this.

For clients that hold pensions in cash, Pension firms would need to make sure that customers have been told about the likely long-term impact on their incomes

The four pathways outlined by the FCA are:

  • Those who do not plan to touch their money in the next five years
  • Those who plan to buy guaranteed income with an annuity in the next five years
  • Those planning to take long-term income from their pension within the next five years
  • Those planning to cash in their whole pension within the next five years

And that’s a wrap!

So, have a read of the updated sections of COBS mentioned throughout and change any practices if this is necessary and make a note of the dates when these actions come into force.

Dates for the diary

The changes to ‘wake-up’ packs, retirement risk warnings and reminders changes, and the annuity information prompt will come into force on 1 November 2019.  Changes to make the cost of drawdown products clearer and comparisons easier will come into force on 6 April 2020.

For full details, here is Policy Statement 19:1 https://www.fca.org.uk/publication/policy/ps19-01.pdf

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