This is the start of a consultation on Non-Workplace Pensions; there having already been lots of work around Workplace Pensions because of Auto Enrolment and this is a natural follow-on. The brief is wide embracing all forms of personal pensions from SIPPs to retirement annuities. Here are some of our observations of the paper.
CTC will be responsing to the paper in April and indicating how it can best help clients; our Heritage Marketing capability enables advisers and consumers understand legacy arrangements and compare them to alternatives.
In many ways, the FCA are wondering whether a number of the “remedies” already applied to Workplace Pensions (e.g. the introduction of Independent Governance Committees, caps on charges for default funds, caps on exit charges) could also be applied to individually purchased products.
Growth in the Market
The FCA makes a lot of the fact that the market is large and growing (£400bn of assets which is twice Workplace DC). In reality much of this applies to SIPPs (sales of which have taken off since the advent of RDR) and more recently an uptake in Personal Pension sales – almost certainly relating to the advent of Pension Freedoms.
All this “growth” will be in the form of transfers, not new savings. No great distinction is made between Non-Workplace Pensions (NWPs) used for accumulation as opposed to decumulation purposes. One suspects that since the demise of commission, far fewer Personal Pensions are sold to the self-employed for retirement savings purposes. This is an area which may eventually be addressed through an extension of the Auto Enrolment rules. But that will take a long time to take effect.
The FCA suspects that there are significant demand-side weaknesses in this market. After the initial purchase consumers probably take too little interest in the ongoing progress of their funds, or in the underlying charges involved in their pension arrangements. Although default funds do not have to figure in this market the FCA suspects that in many cases sales are effectively going into default type funds – where there are no price controls.
The FCA comments that charging structures are complex in the eye of the consumer and particularly in the case of SIPPs have many layers. Increasingly the FCA is of the view that disclosure of charges in percentage forms is not readily understood and they point out quite strongly that after the initial purchase it is very difficult for consumers to understand what charges are being made. One could expect requirements emerging for annual statements to include more charging disclosure – the aim of this being to encourage more switching activity and thus an increase in competition.
The FCA is concerned about the level of charges on historic policies, with specific concern for charges made for paid-up policies. It is perhaps ironic that regular payment contracts which now have the lowest charges were probably those that, at outset, carried much higher charges – there are benefits in staying the course! These benefits, of course, will not have accrued to those who have already transferred out. This aspect is really a continuation of recent TCF themes being pursued by the FCA. One of the things the FCA will be asking insurers in particular is whether they are applying all the rules now applicable to Workplace Pensions to Non-Workplace Pensions as well.
This is only a preliminary consultation with views requested by the end of April 2018.