Breaking through the barriers to post-retirement investment

Elizabeth Haggis, principal of Excuria Law, analyses the recent Financial Conduct Authority (FCA) interim report on retirement income which focused on the behavioural barriers to effective post-retirement investment by consumers and providers alike.

Original news

Retirement income market review confirms FCA’s concerns, LNB News 11/12/2014 154

An FCA retirement income market study has confirmed its concerns that competition is not working as well as it could be for consumers, with many continuing to miss out on higher income by not shopping around. However, the regulator’s analysis also suggested that for people with average-sized pension pots and low risk appetite, the right annuity purchased on the open market offers good value for money relative to alternative drawdown strategies. The FCA has made a series of recommendations, which take into account the pension reforms announced in the 2014 Budget, in particular to improve the way firms communicate with customers about their options.

What is the background to the market study and Thematic Review 14/20?

The FCA published an interim report on retirement income in December 2014 (see Retirement income market review confirms FCA’s concerns LNB News 11/12/2014 154). This 102-page document follows on from:

• a thematic review of annuities, and
• revised terms of reference, in light of the 2014 Budget changes, for a market study to assess whether competition in the retirement income market is working well for consumers and, if not, why that is the case—RIMS arises from these amended terms of reference

A word of caution: RIMS refers specifically to ‘8 million members of personal and stakeholder pension plans in the UK’. Earlier studies refer to people with ‘[defined contribution] DC pension pots’. Therefore, it is not immediately clear whether it is intended to refer to all DC scheme members, or limited to members of contract-based DC schemes. Given the fragmented nature of the regulation of DC pensions, which depends largely on whether the originating pension vehicle is contract- or trust-based, it is likely that RIMS can only deal with contract-based DC consumers—ie