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Elaine Turtle: Retirement Outcomes Review

Elaine Turtle of DP Pensions
We recently saw the Financial Conduct Authority (FCA) issue a policy statement in response to the consultation it carried out in June 2018 on retirement outcomes. As part of the consultation exercise, the FCA engaged with SIPP providers and the industry body AMPS, among others.
The policy statement focuses on three key areas: how we can all improve the communications sent to consumers before they access their pension pot, ensuring consumers have accessed the support or guidance that they need and the provision of investment pathways for non-advised consumers entering drawdown.

I have to admit to being quite concerned about these investment pathways. While they may be right for some pensions savers taking their pension benefits, it is something that for bespoke SIPP providers seems nonsensical. It goes completely against the spirit of SIPPs which is to allow investment flexibility within a pension arrangement.

The policy statement suggests that large providers would be required to offer single investment solutions that will match with a range of consumer outcomes. But for smaller providers, many of them the bespoke SIPP providers, it is suggested that they will have to refer consumers to a drawdown comparator tool provided by Single Financial Guidance Body who have recently been established. What the policy statement doesn’t say is what the follow up is to a consumer that has used the comparator.



Other changes are being made to wake-up packs, retirement risk warnings and annuity prompts which all take effect from 1 November this year, while changes for the cost of drawdown products and charge comparisons does not become effective until 6 April next year. Either way, there is a huge amount of work for firms to consider and implement in readiness for these rule changes.
In terms of wake up packs, these will now be issued from age 50 when consumers can first access the Pension Wise service. Then again at 5 year intervals until such point they have accessed all their benefits.

For the suggested retirement risk warnings, this is already done for those not taking advice and so shouldn't be an issue for SIPP providers. But it is worth noting that even though these risk warnings are already part of the process, some of the content and way these are delivered will need to change.

One positive to come out of the policy statement is around key feature illustrations, these are being updated and must include a front page summary along with a first year charge figure in pounds and pence. Until now, illustration returns have been at the discretion of the provider and could be shown in either nominal or real terms but from 2020 it must be shown in real terms. This is a welcome change as it reflects the requirement under pre-retirement / accumulation illustrations which are provided in real terms.

There is also a requirement to provide illustrations where an Uncrystallised Funds Pension Lump Sum (UFPLS) is being provided as well as when funds are being extinguished. The purpose of this is to show costs to the consumer.
There is much for SIPP providers to come to terms with in both the policy statement and the accompanying consultation paper. Let’s hope that the consumer finds the changes to the information helpful, educational and understandable to help them obtain better retirement outcomes. 


Elaine Turtle, Director, DP Pensions

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