FCA speech on the future of pensions

The FCA's Chief Executive, Nikhil Rathi, has delivered a speech on the future of pensions, addressing the question of ‘pensions adequacy’ as well as key regulatory initiatives such as the Value for Money Framework and the Advice Guidance Boundary Review.

Mr Rathi suggests that we should recognise auto-enrolment for the success it has been, with 88% of workers now having a workplace pension (up from 55% in 2012). However, he acknowledges that significant gaps and inadequacies remain and cites a number of statistics relating to generational, gender and ethnicity based discrepancies. Alongside issues with the adequacy of savings and early engagement with pensions investments, the speech considers whether products and returns are in any case good enough, with value a key theme.

The speech goes on to discuss various regulatory initiatives, either already in force or impending, with a bearing on the pensions adequacy question, including:

• The recently introduced Consumer Duty, underpinned by the issue of value (see our recent updates here and here). Given more than nine out of ten workplace pension holders leave their funds in their employer's default scheme, Mr Rathi observes that industry can help by making good products the default even if someone is not engaged.
• Value is of course also central to the proposed Value for Money Framework (see our updates on this here, here and here). The speech notes that the consultation proposals will require operators to be transparent about their investment returns, costs, and other metrics, allowing scrutiny as to whether value is genuinely achieved over the long term. They will also encourage consideration of a broader range of asset classes, hopefully leading to diversification and better long-term risk-adjusted returns.
• Work with the PRA and TPR to manage potential risks and support the development of a more positive ecosystem for UK investment, noting that while it is not for regulators to direct how schemes invest the goal is to remove inappropriate barriers. The speech cites rules broadening retail and pensions access to the Long Term Asset Fund (see our update here). The speech reports that three umbrella funds alongside five sub-funds have now been authorised, with a strong pipeline and more expected shortly.
• Empowering and supporting consumers through work with the Treasury on the Advice Guidance Boundary Review (see our update here). The speech cites data that 53.58% of all pots accessed for the first time in the contract-based retirement income market were accessed without advice or guidance. In this context, the FCA wants to support the emergence of commercially viable, high-quality models of support for consumers to access through regulated channels.
• Intervening in relation to scams and financial promotions (see our update here), with an acknowledgement that when pension dashboards go live the risk of scams may increase.
• Intervening where the FCA sees poor practice in firms, including in the SIPP market. There is a reminder that operators must act to deliver good outcomes for retail customers and avoid causing foreseeable harm, and reference to the recent issue of the treatment of interest earned on customers' cash balances (see our update here). 

The speech is therefore wide-ranging in its survey of the current regulatory landscape in a pensions context, but at the same time does not underestimate the scale of the challenge to create a system fit for the future and the differing responsibilities as between consumers, regulators and industry. 

There is a window of opportunity now, as we reach this generational crossover, to put in a framework fit for the future. A collective conversation has started on what we want from the system. But there is no need... to wait for the outcome to emerge before taking action to engage consumers.

https://www.fca.org.uk/news/speeches/future-pensions-act-today-plan-tomorrow