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Advising On The FCA’S Retirement Income Study

Andy McCabe

Andy McCabe, Managing Director of Selectapension, takes a look at the FCA’s retirement income study:

Last week the FCA published its retirement income study, which heavily focussed on requirements for Product providers once the pension reforms come into force on 6th April. What was seemingly absent from the FCA’s report was how their recommendations will impact Advisers, who will be playing a crucial role in guiding their clients’ through a new world of pension legislation.

The FCA clearly focussed on creating immediate actions to remedy the well documented issues with the Annuity market. One of the headline proposals was for Product providers to provide an Annuity quotation comparison to encourage more consumers to take advantage of the open market option and shop around for the best retirement income available. However, as the pension reforms mean that savers will have the right to access cash from their pensions, it is inevitable that more people will choose to stay invested in the market.

At Selectapension we have already witnessed a 42% surge in the number of Drawdown cases being analysed by Advisers since the March 2014 Budget. Therefore it will only be a matter of time until there is a requirement for Income Drawdown Providers to give customers a quotation comparison. Without this, we will have instigated a two tier system with significant risk of consumer detriment.

If this system were to be established, the FCA will need to call on the Adviser community for guidance on how this process will work. For example, where an Adviser is providing client advice and has contacted a Provider to execute a service, the quotation comparison may not be needed, as the Advisers would have already conducted the analysis.

In addition, there is a risk that bundling each unique product component into a package makes it difficult to make comparisons to see whether the same results could be achieved by obtaining individual products from different Providers.

The key for both Advisers and product Providers adopting the recommendations from the FCA is having the right technology in place to take the hard work out of product research and comparison. There is a risk that if firms do not invest in, or adequately develop IT systems that support blended solutions, these companies may fall behind the changing reporting practices and supply of information to consumers.

I will be interested to see an updated report once the pension reforms come into force when Advisers can tell the true picture on how their clients have responded to the legislation changes.

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