In its Retirement Outcomes Review, published 28 June, the FCA said it wants to significantly improve engagement and bring down fees by encouraging retirees to compare and shop around.
Part of the regulator’s strategy is to boost retirement outcomes through greater clarity around charges and the planned introduction of investment pathways.
Opaque
In its review, the FCA found charges in drawdown vary considerably from 0.4% to 1.6%, which “can often be complex, opaque and hard to compare”.
Some products can have as many as 44 different charges associated with them.
“If firms fail to introduce investment pathways with appropriate charge levels, the FCA has not ruled out introducing a cap on drawdown charges,” the regulator warned.
It has also proposed mandating that charges will have to be clearly stated in a ‘headline document’, such as a key features illustration.
Engagement
However, the report also noted widespread mistrust and a lack of engagement from retirees.
A typical respondent told the regulator: “Yes, ‘cause I’m not interested in financial things. […] I have no confidence with the way that everything’s performed, and I’ve lost the capital on investments over the years, so that’s one of the reasons.
“I don’t have any confidence in the financial services industry. That’s the truth of it.”
The survey also found evidence of a widespread lack of awareness about investment choices.
Consumers who are not aware of where their money is invested are less likely to have engaged advice and made appropriate investment choices when moving into drawdown, the report authors conclude.
A recent survey by Zurich further illustrates the scale of the challenge, with a third of people using drawdown (32%) to fund their retirement having no hands-on investment experience and two in five (41%) of these have not received financial advice or guidance.
The next steps will be for the FCA and the Money Advice Service to develop a drawdown comparison tool.
Any requirement for fee caps will be determined after the implementation of investment pathways. Currently under a six-week consultation period, a policy statement is expected in January 2019.
