Retirement Outcomes Review Feedback Policy Statement 19-21

The intended proposals

As forecast in our blog post earlier in the year, the purpose of this Policy Statement is to help non-advised drawdown consumers, who struggle to make investment decisions.

Main findings

The main findings were:

  • Introduction of ‘investment pathways’ for consumers entering drawdown without taking advice.
  • Consumers entering drawdown must make an active decision to invest predominantly in cash only.
  • The requirement to provide consumers with annual information on all the costs and charges they have paid.

Providers have until 1 August 2020 to implement this.

Investment Pathways

The FCA has now confirmed that all non-advised customers must be presented with the choice of 4 drawdown options.

The four pathways 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.

The offering of these pathways will help customers ensure that they are investing in assets and funds which best suit their retirement needs.

Consumers entering drawdown

At drawdown, non-advised customers will now only be allowed to predominantly invest in cash if they make an active decision to do so. Pension firms need to make sure that customers have been told about the likely long-term impact on their incomes and get the customer to confirm that they understand the risks associated with this.

Costs and charges

For advised and non-advised customers, pension providers will now need to make pension charges more transparent and predictions easier to compare. These annual costs and charges will also need to be disclosed clearly to the customers in pounds and pence.

Ensuring that costs and charges are presented clearly will hopefully help customers understand the long-term costs involved in their pensions and help prevent customers pension pots being dramatically reduced by high charges.

Overall there was nothing particularly surprising in this paper, and these changes will help ensure that customers and in particular non-advised customers are protected against making bad retirement decisions.