FCA seeks drawdown charging information from pension providers

The Financial Conduct Authority (FCA) has written to "a sample of pension and retirement income providers" to request this information, which they have been asked to provide by 15 February 2016. The latest request comes after a previous information-gathering exercise revealed a significant increase in sales of these products since the new pension freedoms came into force on 6 April 2015.

"The new data request will allow us to monitor the impact of this market development on consumers and tailor our regulatory approach to achieve an appropriate degree of consumer protection," the FCA said in its letter, which it published on its website.

Insurance law expert Bruno Geiringer of Pinsent Masons, the law firm behind Out-Law.com, said that the requests add to the fact that some companies may be in the midst of their year-end preparations or preparing for the introduction of the new Solvency II regulatory regime for insurers.

"This new data-gathering exercise by the FCA follows hot on the heels of other consultations and surveys in the summer by the Treasury and the Pensions Regulator into barriers preventing people taking action under the pensions freedoms," he said. "Now, this exercise drills down into the charges for a range of post-pension freedoms retirement products including flexi-access drawdown, capped drawdown and uncrystallised funds pension lump sum, or UFPLS."

"Product providers are in the unenviable position of trying to find the right line between holding on to pension funds and doing the right thing to help customers at the same time. As is always the case, charges bite harder into smaller pots and this is not an easy problem for the pensions industry to resolve, whether a cap is applied or not," he said.

Separately, the FCA announced a three-month delay to its planned review of the retirement income market, which it now intends to begin in the second quarter of 2016. The delay would enable the regulator to "sequence [the review] effectively with other FCA work and wider initiatives, including the Financial Advice Market Review, our ongoing consultation on changes to our pension rules and guidance, our data collection exercises, and the government's next steps on exit charges and pension transfers", it said in a statement.

"It will also allow us to use a longer data set for our review, providing us with a more robust picture of how the market looks following early reactions to the pension reforms," it said.

The FCA last wrote to firms in July 2015 as part of a UK government investigation into the perceived "barriers" to defined contribution (DC) scheme members taking advantage of the new rules. It found that, of the over 200,000 pension policies accessed in the first three months after the rules changed in April, over 70,000 featured some form of income drawdown option. Annuity sales over the same period fell to 12,418. Income drawdown allows savers to access a regular income from their pension savings while keeping the balance invested, while an annuity is a type of insurance policy which provides the holder with a regular income for life.

In response to its latest request for information, the FCA is seeking details of the products that firms offer to consumers seeking to access their pensions flexibly over time. It is also looking for information about the mix of investments held within these products and the distribution of size of holding per customer; and the level of charges over time and how these vary depending on the size of the investment made and how the consumer has chosen to access their savings.

Firms that have been asked to respond to the data request would shortly be invited to the FCA's offices in order to discuss any concerns or questions they might have, according to the letter.

Pensions expert Simon Laight of Pinsent Masons said that the letter further demonstrated that "price regulation of retirement products is just around the corner".

"The charges cap that we see in workplace pensions is on its way to the retail retirement world," he said. "Some providers are aware of and comfortable with this; others less so."

"Pension provision is becoming a utility, with providers expected and required by government to offer full access even though there is no legal obligation to do so. Soon, regulators will be setting the price as well," he said.