The ROR is looking at four key topics, all relating back to assessing the effectiveness of competition in the decumulation market. The FCA accepts that post-freedoms, there is a blurring between accumulation and decumulation. Products included are annuities, income drawdown, ‘hybrid’ products including those that offer some form of guarantee and Uncrystallised Pension Fund Lump Sum (UPFLS) cash withdrawals (more a product feature than a product itself). Hybrid products with guarantees can offer a balance between flexibility and security, and including these in the ROR will hopefully give providers and advisers more confidence offering and recommending them.
The FCA has long had concerns over how able consumers are to shop around for an annuity (right type as well as best rate) and if providers could do more to encourage this. Recent statistics show the majority of customers buying annuities or drawdown do so with their current provider, and the FCA will carry out further analysis to understand why.
They are now extending their analysis to consider if wider decumulation options are further complicating shopping around, or increasing disengagement. To me, providers and advisers need to start educating their customers well before decumulation starts. The first step is generating awareness of future options. Then comes creating an understanding of the personal benefits of each. Next is the individual choosing their best option – annuity, drawdown, hybrid or full encashment. It is only then that the individual might shop around for the ‘best’ regulated product – and in reality, some may not have the stamina for this. For drawdown and UFPLS, there is also a need for ongoing review. Advisers can and do add value at each of these stages, and it is right that the FCA focuses on whether there are particular risks in the non-advised space.
Research shows the pension freedoms have increased customer engagement with saving for retirement, and in many cases have led to individuals saving more. This is very positive, and engaging earlier in the accumulation stage will pay dividends when decumulation approaches.
Historically, many annuities have been purchased without advice and this continues to be the case. What has changed is the significant increase in non-advised drawdown sales – 32 per cent from the FCA’s most recent data. The FCA wants to understand if consumers are able to make informed decisions around more complex products and if providers may be ‘framing’ options in ways that encourage sub-optimal customer choice.
