I will admit it. I sometimes feel quite sorry for the Financial Conduct Authority (FCA) team tasked with regulating the ever-changing pensions market.
It reminds me of trying to complete a jigsaw puzzle where every time you get half-way there, a budget, a change of pensions minister or a referendum comes along, and you find you have some new pieces, some have changed their shape, and some of what you have already completed gets removed.
But enough of the sympathy. As the FCA points out, “pensions are of fundamental economic and social importance in ensuring that people have an adequate income in retirement”, and “what to do with pension savings is one of the most important financial decisions people have to make”. So it is important to get the regulation right, and to be prepared to change it in response to government policy, market developments and consumer behaviours. The Retirement Outcomes Review (ROR) has its place within this, looking at competition in the decumulation market.
The FCA is seeking input on its ROR terms of reference. This follows on from its Retirement Income Market Study, the conclusions of which were partially invalidated as they were based on a world before the 2015 pension freedoms which completely changed the decumulation market. The FCA is collecting data to see how the market is changing, with further feedback due in the summer of 2017 which will allow more time for the market to settle.
The FCA is quick to highlight other initiatives it is progressing. These include proposals to cap exit charges for those wishing to exercise pension freedoms, preparing regulation for the secondary annuity market, developing an ‘annuity comparison remedy’ and collecting data to understand commission payments for non-advised decumulation product sales.
Previously, the FCA highlighted the overlap between the ROR and the Financial Advice Market Review (FAMR), its joint project with the Treasury. FAMR has generated a few more jigsaw pieces, although many are still to take full shape – clarifying guidance versus advice, the pensions dashboard and the Pensions Advice Allowance being examples. It is for this reason that the ROR is focusing on non-advised journeys and not advice elements of decumulation.
There is also a mention of the proposed Lifetime Isa (Lisa). When (or if) the Treasury finalises details, the FCA will need to consult on how to regulate Lisa, bearing in mind the risk of some individuals losing out by choosing to invest in a Lisa rather than to stay in a workplace pension with valuable employer contributions.
The EU Referendum outcome also gets a brief mention. EU regulations will continue to apply, at least until we formally exit the EU and where written into UK regulation, unless explicitly removed. The FCA has also reminded firms to continue to prepare for those due to come into effect ahead of our exit. This latest document covers those which could impact pensions, including the Institutions for Occupational Retirement Provision Directive, the Markets in Financial Instruments Directive II and the possible extension to pensions of the Packaged Retail and Insurance-based Investments Products regulation. I would hope that the closer we get to exit, the more pragmatic both UK and EU regulators will be regarding making changes which could be disapplied on exit.
