It is now 10 years since George Osborne stood up in the House of Commons to announce that nobody would ever need to buy an annuity again, and nine years since pension freedoms were implemented.
Pension freedoms certainly brought about a sea change.
Pension savers have a great deal of flexibility when taking income from their pensions to match their objectives. But that in turn means choices, and therefore some problematic decisions to make.
Getting regulated advice to navigate this maze makes sense for many people.
The Financial Conduct Authority has long since let the industry know it wanted to have a closer look at the area of retirement income advice, and last year conducted the research as part of a thematic review.
The regulator finally published its results in March.
Below, I run through the main themes emerging from the FCA’s thematic review, and how they reflect the FCA’s key findings.
The thematic review
The FCA conducted the research in the first half of 2023. It had three main aims. It wanted to:
- get an insight into how the retirement income market is working;
- understand if firms’ advice models consider the specific needs of consumers in decumulation; and
- consider whether consumers were getting suitable retirement income advice.
All of this will inform their future areas of work.
The review was in two parts.
First, in June last year the FCA sent out an initial survey to 1,275 adviser firms.
This was not a small request. There were 87 questions, looking for input on a wide range of areas including adviser remuneration, vulnerable customers and target markets, as well as relevant data and management information requests.
Nine hundred and seventy seven firms responded and their answers make up a portion of the results of the review.
The other information was collected from 24 firms picked by the FCA to submit client files into the review.
The FCA’s overall verdict was that retirement income advice was a mixed picture.
There were no systemic issues, nor were there widespread problems. And some firms had adopted a specific decumulation approach.
But there were pockets where adviser firms were falling short of FCA expectations, for example around record keeping.
Alongside the results of the review, the FCA published a'Dear CEO' letter plainly outlining which areas it was concerned about.
This direct summary – together with the meaty report, including examples of good and bad practices – should help adviser firms review their approach and check they are in line with FCA expectations.
The thematic review is comprehensive, covering a wide range of areas from centralised retirement propositions, including the role cash flow modelling and risk profiling could play, to advice suitability.
When you read the details there are six different themes that reappear in each section.
A consistent framework
Throughout the report the FCA mentions the benefits of the adviser firm developing a consistent framework to giving retirement income advice.
Whether they develop a CRP or not, the FCA is looking for the adviser firm to design an approach that sets out clear parameters for their advisers to follow, together with full guidance on how to use it.
