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FCA promises strategy to fix major pension problems

Boss of City watchdog warns of 'major regulatory issues' in pensions market and highlights defined benefit transfers as 'one of the most complex transactions an individual can undertake'.

FCA promises strategy to fix major pension problems

Financial Conduct Authority (FCA) chief executive Andrew Bailey has admitted there are 'major regulatory issues' in the pensions market and pledged to fix them with a strategy to be published later this year.

Full details of the strategy have not been revealed, but a speech by Bailey (pictured) suggested it is likely to address defined benefit (DB) pension transfers, drawdown and how people receive income in retirement. 

Appearing at the City Banquet at Mansion House, Bailey said the regulator would publish its pension strategy later this year 'setting out for the first time our assessment of the major regulatory issues in the sector'.

Bailey's speech highlighted issues the FCA was likely to tackle. He described a DB transfer as 'one of the most complex transactions an individual can undertake' and warned the regulator would act when it saw example of bad practice. Earlier this week the FCA said less than half of the 88 DB transfer advice cases it looked at since 2015 could be deemed suitable. 

'Defined contribution accumulation rates are typically lower than DB rates of the past, and this is compounded by low real interest rates.  Auto-enrolment and workplace pensions help in this respect, but the challenge remains,' Bailey added. 

He also said the regulator was looking at 'retirement income products, drawdown and non-workplace pensions'.

Bailey (pictured) also highlighted the financial advice market as a 'major area of attention', acknowledging concerns over customer access following retail distribution review (RDR) reforms implemented in 2013.

These changes imposed higher qualifications on advisers, banned them taking commission from financial product providers and increased the range of investments they had to consider in order to call themselves 'independent'. 

Bailey said: 'I think that gap is probably exacerbated by low interest rates, which mean that the cost of advice looks less favourable when compared to returns. And this probably has more of an effect in areas where the fixed cost of advice – which is inevitable – looks unfavourable relative to the smaller amount of investment involved.'

Bailey said he hoped the regulator's current reforms, the Financial Advice Market Review (FAMR), would develop 'a market which delivers affordable and accessible financial advice and guidance to everyone, at all stages of their lives'. 

'As part of this, it is important that we do all that we can to provide clarity on the boundary between advice and more general guidance. I strongly agree that the more uncertain the boundary, the more advisers will rationally aim to keep away from going nearer to it, something that is not helpful.

'My commitment is that the work on this important issue will go on until firms can operate successfully to the benefit of consumers using common sense and good rules of thumb.' 

1 comment so far. Why not have your say?

Mark Stringer

Oct 05, 2017 at 17:08

“Warned the regulator would act when it saw example of bad practice” The regulator couldn’t regulate the flow of water from a tap never mind pensions. That’s why they are employed as regulators.

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