The issue of ‘value for money’ in workplace pensions will be a regulatory priority for the year ahead, according to a presentation by the FCA at the Corporate Adviser Summit.
The FCA’s head of department for pensions and funds, Pritheeva Rasaratnam told delegates that this complemented much of the work they had done to date with its work to improve the transparency of costs and charges within the asset management sector.
She says the FCA is also working closely with The Pensions Regulator on joint initiatives designed to improve value for money in the workplace pensions sector.
Part of the FCA’s work will be focused on the role of IGCs, who will have new duties to assess the value for money of any workplace scheme.
Rasaratnam added that the regulator is looking to extend the role of the governance committees. “We may be looking to extend the role of IGCs into non-workplace pensions.” While she said there was debate about whether the role of IGCs could be boosted – to give them the same fidciary dutires as trustees in the master trust sector – there were no imminent plans to align the two at present. Although she says this may be something the regulator looks at in future.
Part of this increased role for IGCs will include the new duties to ensure greater transparency on how ESG risk factors — particularly relating to climate change — are included within the investment strategy. It was important that IGCs review whether they currently have people with the right skill sets to carry out these new duties, she said.
The other key focus on this ‘value for money’ objective will be the at retirement market, Rasaratnam said.
This is a key challenge. At present significant numbers of drawdown customers do not take advice and as many as a third have these drawdown accounts wholly in cash. This does not seem appropriate. At the very least they should be looking to outpace inflation.”
Rasaratnam says the new investment pathways — due to come into force next year — will help address this issue.
However she warned the financial services industry that they need to do more to address this problem.
“These pathways will help ensure that the investment solutions are appropriate for an individual’s objective and retirement needs. But more needs to be done to support this.
“Providers and firms need to look at who they are marketing too and think whether these messages help consumers navigate these difficult decisions.”
Rasaratnam also said that there would continue to be “intense focus” on the issue of DB transfers. However she said it was not the regulator’s aim to “close down advice” on this issue, despite its recent proposed ban on contingent charging.
She said: “We are keen to maintain access to advice on this issue, but we want to ensure that consumers are getting the right advice.” She said as part of this focus on value for money there will be a new requirement for advisers to consider default funds on DC workplace pensions as one of the main options for these transferred funds.
She added: “We want to see a pensions market with customers’ interests at its core. We will look at steps needed to improve outcomes for those in workplace pensions to ensure they have an adequate income in retirement.”