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Retirement Outcomes Review Summary

Core Content

The Retirement Outcomes Review is a key initiative by the Financial Conduct Authority (FCA) aimed at assessing the impact of pension reforms introduced in April 2015 on competition in the decumulation market. The review seeks to understand how consumers and firms are responding to increased pension flexibility, including the ability to access savings from age 55, and how these changes are influencing financial planning, product choice, and market dynamics.

The FCA's objective is to promote effective competition that benefits consumers. This includes examining whether the current regulatory framework is supporting this goal or inadvertently creating barriers to entry, limiting innovation, or reducing consumer choice.

Main Topics to be Explored

The review will focus on the following key topics:

• Shopping around and switching: Assessing whether consumers can effectively compare and switch between the broader range of pension products available now, particularly in light of the challenges with annuity comparisons.
• Non-advised consumer journeys: Investigating whether the complexity of products without advice is leading to poor consumer decisions or lack of engagement.
• Business models and barriers to entry: Evaluating the evolving business models of firms and identifying any potential barriers to entry for new or challenger firms.
• Impact of regulation on retirement outcomes: Determining if current regulations are overly burdensome or if they are hindering innovation and competition in the market.

These topics are part of a broader FCA strategy that includes supervision, policy work, and market-based analysis to support the implementation of pension reforms and ensure positive outcomes for consumers.

Key Information

• Pension Reforms (April 2015): These reforms have increased consumer flexibility in accessing pension savings, but also introduced more financial planning decisions.
• Market Fragmentation: The market is now more fragmented, with consumers accessing a wider range of products and options.
• Low Interest Rates: Affecting investment returns and potentially influencing consumer choices.
• Stakeholder Concerns: Raised issues include annuity rates, product charges, non-advised sales, and the sustainability of income.
• New Products and Initiatives: The introduction of the secondary annuity market and Lifetime Individual Savings Account (LISA) in 2017 will further shape the market.
• FCA Activities: The review is part of a wider package of FCA initiatives, including:
  • Supervision: Thematic reviews on annuity sales and fair treatment of long-standing customers.
  • Policy Work: Implementation of pension reforms, including a cap on early exit fees and guidance on the secondary annuity market.
  • Markets-based Analysis: Ongoing data collection and behavioural testing to understand market dynamics and consumer outcomes.
• Interaction with FAMR and Public Guidance: The FCA is collaborating with the Government on the Financial Advice Market Review (FAMR) and monitoring public financial guidance initiatives.
• EU Context: The UK's decision to leave the EU may impact future pension and retirement income regulations, especially with ongoing EU initiatives like the Capital Markets Union (CMU) and the PRIIPs Regulation review.

Regulatory Scope

The FCA regulates firms in the pensions and retirement income sector, including:

• Personal pension schemes (e.g., stakeholder pensions, SIPPs)
• Workplace pension schemes (in collaboration with The Pensions Regulator)
• Insurers, financial advisers, SIPP operators, and brokers

The Government sets the overall framework for pensions through social policy and taxation.

Product and Geographic Scope

The review focuses on the following product categories:

• Annuities: Provide a guaranteed income for life or a fixed number of years.
• Income drawdown: Allows flexible access to pension funds through investment.
• Hybrid products: Offer some form of guarantee, such as death benefit or income benefit.
• Uncrystallised fund pension lump sum (UFPLS): Enables partial or full cash withdrawals from pension savings, with tax implications.

The geographic scope is limited to the UK, though the FCA will consider relevant EU initiatives that may impact the market.

Next Steps

• Stakeholder Engagement: The FCA is encouraging firms and stakeholders to respond to specific questions outlined in Chapter 4 by 31 August 2016.
• Data Collection: The FCA will gather market-wide data on commission payments for non-advised sales of retirement income products, with a data request issued to a broader range of firms.
• Guidance and Testing: Additional guidance will be provided to firms, and behavioural testing will continue to inform regulatory updates.
• Final Report: The FCA intends to publish its final report in Summer 2017.
• Further Remedies: If necessary, the FCA will consult on further remedies or recommendations in line with its obligations.

Conclusion

The Retirement Outcomes Review is a comprehensive assessment of how the pension reforms have affected the decumulation market, with a focus on competition, consumer outcomes, and market evolution. It is part of a broader FCA strategy that includes supervision, policy development, and market analysis. The review will also consider the impact of EU regulations and the role of financial advice in shaping the future of the retirement income market.