Later Life Academy issue response to FCA's retirement outcomes review

25 August 2016

The Later Life Academy (LLA), the commercial and training organisation for later life advisers, has today (25 August 2016) issued its response to the FCA’s Retirement Outcomes Review (MS16/1).

The Retirement Outcomes Review was published last month and follows on from the regulator’s March 2015 Retirement Income Market Study. It reviews and asks for stakeholder feedback on the post-pensions freedom world (introduced from April 2015), how the reforms have been implemented, how firms and consumers have responded to them and, in particular, the role of competition in the decumulation market.

In offering its response to the Review, the LLA suggests the FCA has made its terms of reference too tight in simply looking at how pension savings are converted into retirement income.

The LLA points out that, for 85% of retirees, the retirement income market is much wider than this, and suggests that (as a minimum) the Review needs to examine how consumers use the choices available to them from pensions, but also other accumulated wealth, to meet their retirement needs.

It believes the FCA is approaching its market study as if the old market, where retirement lifestyle is only determined by what income defined benefit pensions or annuities provide to consumers, still exists.

The LLA argues this is no longer the case and that three drivers: pension freedoms; the economic environment (particularly low interest rates); and social changes (the removal of a default retirement age, people living longer and changing attitudes to working in retirement) are combining to create a completely new retirement market that is in its infancy.

The LLA suggests that, given the majority of the UK population are not saving enough for their retirement, combined with low interest rates, there should be a regulatory understanding that many individuals will not be able to fulfil their retirement aspirations on pension savings alone.

The LLA says this new market requires new approaches focused on providing consumers with what they actually want – it suggests that the FCA Review should be focused on how to monitor and encourage the development of this market.

Bob Champion, Chairman of the Later Life Academy, said:

“The overriding danger with this FCA review is that it operates within constrained parameters and essentially seeks to understand and develop a market that no longer exists. This cannot simply be about pension income – the entire pension industry continues to argue that most consumers are not saving enough into their pensions, yet they treat retirement income as if they have.

“This review must look beyond pensions and in particular, cover housing wealth and how retirees intend to fund their retirement and/or cover their care needs, by accessing it. Equity release, for instance, with its guarantees for homeowners has never been so cheap and you only need to look at the growth in demand, activity and lending volume to see how it is becoming a much more accepted solution in retirement.

“There are also significant issues to tackle in terms of the ‘advice gap’. While we are fully supportive of Pension Wise, there is a huge gap between what is delivered and what most consumers actually need to provide their own retirement solutions. To our mind, it would be far better to focus on closing the advice gap, and seeking improvement in consumer outcomes, rather than chase a perfect advice model that is not available or attainable, and far too costly for the majority of the UK population.

“We appear to have a market that falls into three categories: those with adequate pension income; those (the majority) with inadequate pension savings but are home owners; and those who are not home owners and may depend upon means-tested benefits. For estate planning purposes, the former are deferring drawing on pension wealth to take advantage of pension death benefit rules; the others, just to meet their spending requirements, need holistic solutions that are more complicated yet will meet more consumer resistance to pay for them. .

“As we stress in our response, this is a new retirement income market in its infancy and while the regulator shouldn’t treat it with ‘kid gloves’, it should certainly do all it can to encourage its development, and not stifle what it can do for the consumer. We should not be trying to play by the ‘old rules’ in this new world.

“We, at the LLA, have now submitted our response to the Review and are offering to meet with the FCA to discuss this in further detail – we believe we offer a unique perspective and represent a considerable number of interested parties which can help the regulator deliver in this area.”

For further information on the Later Life Academy, please visit: www.laterlifeacademy.co.uk or follow it on Twitter @Latelifeacademy