Backlash looming due to the over-regulation of pensions
Years of tough pension regulation has led to a catastrophic breakdown in trust between the pension industry and customers.
When the FCA set out to fix problems, this creates higher standards, but also barriers to entry higher costs and loss of confidence sets in when the FCA uncover problems and publicly fine companies.
Hereâ€™s what the FCA say in their latest research report CP17/16 on the subject.
- Churning portfolios: just over half of total withdrawal pension pots were not spent but were moved into other savings or investments. For those amounts below Â£30k this is a poor outcome and reminds IFAC how typical it is for customers to take 25% TFC and invest it in ISAs and OEICs instead.
- No trust: the lack of public trust in pensions is staggering. This means that consumers are over paying tax and racking up unnecessary investment charges.
- Not transferring: consumers who access their pots early without taking advice typically take drawdown from their current pension provider without shopping around.
- Not taking advice: before 2015 pension freedom five per cent of drawdown was bought without advice compared to one third now.
- Big decisions: for many people taking their pension is the second biggest financial decision of their lives.
- No alternatives: providers are withdrawing from the open annuity market. Hardly a surprise â€“ they make more money from the (non advised) drawdown.
- No competition: you cannot compare drawdown products. It is highly complex, in fact so complex that you cannot really do anything without advice. But despite this, one third actually do! And there are no comparison tools.
- No innovation: product innovation is almost non existent now.
It is uncomfortable reading for all IFAs and pension advisers.
Despite years of tough regulation, going back to Maxwell days, the problems keep coming and the trust keeps eroding.
The higher standards have brought with them their own problems.
As Reagan said: "â€¦Government is not the solution to our problem; government is the problem."