FCA announce new rules to help with pension investment

Under the plans, 'wake-up' packs must be issued to customers over the age of 50 to help them understand their options well before retirement.

The current packs will also be redrawn to improve the clarity of information provided and to ensure that no marketing material can be included within the packs delivered by investment firms.

Further measures to develop ready-made investment pathways and enforce improved transparency on fees and charges are also being consulted on by the FCA.

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Earlier engagement on pensions

While 'wake-up' packs are currently distributed six months before retirement age, these new rules will allow customers to engage with their pension options earlier.

Customers over the age of 50 will receive an improved 'wake-up' pack that will include appropriate risk warnings and a more accessible headline document called a 'pensions passport'.

The language within this one-page summary document must be clear and accessible, with the FCA citing research that suggests this will improve consumer engagement in the pensions process.

Further 'wake-up' packs will be distributed at five-year intervals until a customer accesses the pension pot, thereby offering opportunities for engagement throughout the critical period leading up to retirement.

These new rules come into force from 1st November 2019.

Investment pathways on the agenda

The FCA is also consulting with firms to ensure that all customers can access an appropriate investment pathway, whether they take advice or not.

They estimate that 100,000 people enter drawdown each year without seeking advice and this can lead to risky investment decisions.

Under these new proposals, customers will be offered a choice of four objectives they would like their pension pot to achieve and then offered an investment pathway based on their choice.

In suggesting these changes, the FCA has pre-empted the possibility of overcharging for such investment services by pointing out that it could impose a cap if charges are disproportionate.

Further elements of the pension investment process under consultation by the FCA include improvements in disclosure.

Firms may be required to provide customers with warnings about cash investments as well as being more transparent about the annual charges paid during the drawdown period.

Currently, there is no obligation for firms to provide this information on an ongoing basis and the FCA believes this stifles competition and leaves customers at a disadvantage.

The consultation will close on 5th April 2019, with the FCA finalising rules on these elements at some point after that date.

Retirees at risk from pension investments

There has been a huge increase in customers complaining to the FCA regarding poor pension investment advice.

Choose recently examined this rise in complaints and the figures from the Financial Services Compensation Scheme (FSCS) that showed compensation pay-outs of £40m in 2018 alone.

The quality of advice given to customers who seek information on drawdown investments and transfers has been highlighted as a concern by both the FCA and the FSCS.

As well as consumers being confused about which pension investments are suitable following deregulation in 2014, others access investments without advice and so may not fully understand the risks.

In recent years, pension mis-selling and fraud has frequently hit the headlines leaving the Government scrambling to ensure regulation catches up.

A major fraud investigation was opened in 2017 by the Serious Fraud Office (SFO) looking at pension liberation scams dating back to 2011.

In the same year, the Government announced a ban on pension cold-calling amidst concerns that vulnerable consumers were being targeted.