Today, the FCA has published feedback on the Retirement Outcomes Review consultation CP19/5 along with its final rules and guidance.
All of the changes to rules and guidance will come into force on 1 August 2020. In summary:
1. Drawdown providers must offer non-advised consumers investment pathways. Consumers entering drawdown, or transferring-in assets already in drawdown, without taking advice must be presented with 4 options for how they might want to use their drawdown pot.
The four options are:
- Option 1: I have no plans to touch my money in the next 5 years
- Option 2: I plan to use my money to set up a guaranteed income (annuity) within the next 5 years
- Option 3: I plan to start taking my money as a long-term income within the next 5 years
- Option 4: I plan to take out all my money within the next 5 years
2. Drawdown providers must ensure that consumers entering drawdown invest wholly or predominantly in cash only if they have taken an active decision to do so.
3. Pension providers must give consumers in decumulation annual information on the costs and charges they have paid on their pension pot, expressed as a single pounds and pence figure.
Investment pathways – more detail
Providers with less than 500 non-advised consumers a year entering drawdown can choose not to offer pathway solutions for any of the investment pathway objectives. They would instead have to refer consumers who select an investment pathway objective to either another provider’s pathway solutions, or the Money and Pensions Service (MAPS) drawdown comparator tool.
Providers not using the easement would have to provide pathway solutions for at least 2 of the 4 objectives, and will have to refer consumers to another provider’s pathway solutions for any objectives for which they don’t themselves provide a pathway solution. Unlike providers that use the small provider easement, they cannot refer consumers to MAPS.
The four pathways do not prescribe the risk profile providers should adopt for each investment pathway objective. However FCA says providers must describe the riskiness of each investment solution that they offer, to enable consumers to make an assessment of whether it meets their attitude to risk.
Andrew Tully, Technical Director at Canada Life said:
‘FCA is proceeding with the proposals it outlined last year. The communications around default pathways need to be very clear to help people understand what the strategy is aiming to achieve, and whether it meets their risk appetite. Communications will need to continue to help ensure that as people’s circumstances inevitably change as they move through retirement, the investment strategy they are using remains appropriate.'
‘While much of this is aimed at non-advised clients, advisers will have to consider pathway solutions when making their recommendation about which investment strategy is appropriate.'
‘The changes around cash funds are sensible. While cash may be appropriate as part of a portfolio, or as a short-term strategy, people using drawdown need to generate investment returns to mitigate the effects of inflation and charges.'
‘Changes to key features illustrations, including showing customers charges in pounds and pence, will help people shop around for the best deal.’