2016 will be quite a year for financial product providers. With the sunset clause coming into full effect in April 2016 providers will, more than ever, need to ensure that prices are competitive and products are innovative to ensure that advisers are in the best position to recommend the right products to the right individuals.
In addition to this, last week the FCA announced that it will be investigating pension and retirement income providers, in order to gain insight intothe different levels of charges faced by consumers wishing to draw down on their pension pots. The investigation will also help to decipher under which circumstances firms require consumers to take advice for those products.
From an advice perspective, this probe is without a doubt, one of the most useful investigations undertaken by the FCA this year. When the pensions freedom reforms were introduced in April 2015, pension providers were poised to launch a host of new products to fit the new rules. A 0.75% cap was placed on all default charges on pension schemes, unfortunately for the consumer, this cap was not applied to drawdown products. Regardless of political allegiance, it’s clear that when the pension freedoms were announced in 2014, The Labour Party was right to be the first to voice concern over potential “rip off” drawdown charges emerging.
The consumer group Which? published a report this year which analysed in detail, the difference in fees charged for accessing money in drawdown. The results highlighted huge disparity in the costs, with the highest charging products seeing retirees lose out on as much as £10,000 over a decade, this is proof enough that getting drawdown wrong will cost clients dearly.
The FCA report will delve deeper into drawdown charges and will cover exit charges also. It will also examine transfer procedures, treatment of insistent clients and financial advice requirements.
Many pension providers do not offer drawdown options leaving retirees to transfer to providers that do. Unfortunately for the retiree there is no clear comparison of drawdown policy fees and the countless costs that can be imposed, making it almost impossible, for consumers to tell whether in retirement they are getting a good deal.
The FCA has stated that analysis of the data will help to establish whether there is significant variation between firms with similar products and services. It will take into consideration their complexity, as well as whether higher charges are concentrated among particular pension pot sizes.
The regulator is expected to use this information to set the pricing structure and enforce a cap on charges. This likely to lead to better outcomes for the consumer.