Brexit aside, Bailey said changing demographic patterns were the biggest issue for the FCA as the UK population ages and individuals take responsibility for their retirement savings, in the shift from defined benefit (DB) to defined contribution (DC) schemes.
“To give a prime example of an issue that we face, the growing number of people reaching retirement could lead to a shift in the balance of assets under management from accumulation–orientated products to decumulation products, including a variety of income drawdown strategies, some of which are likely to be relatively complex,” Bailey told the London Business School’s asset management conference on Thursday.
The interim retirement outcomes report was launched in June 2017 with the final report due to be released this quarter.
While Bailey highlighted the shift of assets from accumulation to decumulation, he was supportive of shifting responsibility onto the individual.
He said: “Given the implications of an ageing population, low real interest rates and the cost of old age, it seems to me that greater choice makes sense in terms of individual circumstances and preferences.
“But it places a responsibility on industry to provide products and the regulator to establish conditions in which those choices can be made securely and confidently.”
The FCA retirement outcomes report noted there are less protections in place for consumers of decumulation products compared to accumulation products and proposed introducing default funds for non-advised clients.
While defined benefit scheme members are automatically provided an income from their pension scheme, defined contribution members are responsible for converting their pension pot into income, through products such as an annuity or flexi-access drawdown.
Old Mutual Wealth was among the first discretionary investment managers to launch a decumulation product following the pension freedoms, with the Generation portfolios.
In 2016, Parmenion launched the Guardian portfolios, focused on maintaining yield and reducing volatility, while Copia launched a decumulation product the following year built from iShares ETFs. In March, Thesis also jumped on the decumulation bandwagon.
