FCA Report Warns Pension Providers Their Products Have Lost the Trust of Consumers

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I’ve taken a keen interest in pensions, having managed my own for more than 5 years now via a Self Invested Plan, which I now manage through a mobile app. This gives incredible visibility of performance, as well as peace of mind.

However, it is an area that is ripe for innovation, especially with the UK pension dashboard set to arrive in 2019.

This dashboard, a cross-industry project, will show you all of your pension information in one place. This data will include estimated state pension performance as well as your other pensions, giving a useful top line overview of where you stand.

But this month pension product providers have been warned that their industry has lost the confidence of clients.

The industry will be concerned by the FCA’s July interim edition of their Retirement Outcomes Review suggesting that a dominant reason why 72% of under 65s have withdrawn cash from their pension is mistrust.

Industry is Currently Lacking Competition

The industry has also been put on notice that the watchdog is considering steps intended to increase competition.

A lack of competition and awareness among consumers that they can shop around and don’t have to buy a drawdown product from the same company as their pension pot has been highlighted as leading to a bad deal for them.

This is supported by the report’s findings that 94% of drawdown products are bought from the same provider as the pension pot was held with.

Report Cites Lack of Qualified Consumer Advice

A need for better access to advice when considering cashing in a pension pot was also highlighted, though providers should take note that the report suggests additional protection is put in place for consumers who buy products without advice.

This could be interpreted to mean that the FCA might look to put new standards in place that all drawdown products must adhere to. Another measure could be an obligation for providers to prompt buyers to take qualified advice before taking a decision.

Huge Market Share Opportunity for Savvy Providers

However, it is far from all bad news with the report highlighting both the extent of the potential in the new market of under 65s buying drawdown products and a huge market share opportunity for providers who can win back trust in their pension options.

A further huge opportunity for pension providers is the report’s estimation that the new auto-enrolment rules are forecast to lead to a fivefold increase in capital under management from direct contribution workplace pension schemes over the next 13 years.

The £340 billion that was in 2015 under management by pension providers operating DC workplace schemes will reach around £1.7 trillion by 2030.

FCA Highlights Deficit of Income Products

The report also indicates that the FCA expects providers of drawdown products to step up innovation and offer a greater variety of choice within their products range.

A lack of drawdown products that combine flexibility with a level of guaranteed income was particularly noted as a deficit in current product ranges.Pens

A point of praise in the report was the tools that providers have developed to help consumers understand the changes to pension rules.

With the pensions market having undergone huge change since reforms were introduced in 2015, and the increase in capital coming into the market through auto-enrolment, there is clearly a huge opportunity for progressive companies.

Engaging with clients through education, communication and tools to help consumers understand their pension could go a long way to providers both winning back the trust of existing clients and increasing market share through attracting new clients.

Offering greater variety in the choice of drawdown products available to clients is also something providers should be prioritising. Those who take the initiative in those areas will almost certainly gain a strong competitive advantage over the next few years.

John Adam

John Adam co-founded iNVEZZ.com, a news, analysis and comparison portal for retail investors. iNVEZZ was acquired by Investoo in 2017.

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