UK watchdog may cap charges on drawdown pensions (updated)

Alliance Witan

28/06/2018 09:08

(Adds more detail)
    By Huw Jones
    LONDON, June 28 (Reuters) - Britain's markets watchdog said
it might cap charges on drawdown of pension savings if pension
providers are not giving customers value for money.
    People have been able to cash in their pension pots since
the UK pensions market was opened up in 2015. But a review by
the Financial Conduct Authority found that people were not
always getting the best deal and that there was a lack of
transparency on charges.
    "The FCA found that, while consumers have welcomed the
freedoms, some are at risk of harm," the regulator said on
Thursday.
    The regulator singled out the treatment of consumers who do
not take advice when drawing down pension money, or taking cash
out of a pot and reinvesting it to obtain a regular retirement
income.
    Between April 2015, when the new freedoms were introduced,
and September 2017, over 1.5 million direct contribution pension
pots were accessed, with most pots below 30,000 pounds 
($39,261.00).
    More thank half of the fully withdrawn pension pots were not
spent but transferred into other savings investments, often for
drawdown.
    This does not always provide value for money as people
typically use their existing provider rather than shop around,
the FCA said.
    "The FCA found that charges vary considerably from 0.4
percent to 1.6 percent between providers and can often be
complex, opaque and hard to compare," it said.

    PATHWAYS
    Some products had pricing structures with up to 44 different
charges, and one in three drawdown consumers did not know where
their money was being invested.
    Providers were "defaulting" customers into cash or cash-like
assets when income would be 37 percent higher over 20 years if
the money was invested in a mix of assets, the FCA said.
    "In many cases, keeping money in a pension would have
resulted in better returns, on average, and in paying less tax,"
the FCA said.
    The watchdog proposed that pension providers send their
customers a "wake up pack" from the age of 50 with a one page
document spelling out the risks before tapping a pension pot.
    It is also consulting on requiring pension providers to
offer "investment pathways" comprising three "value for money"
options on what to do with money taken out of a pension.
    A charge of 0.75 percent should be used as a point of
reference, and firms would have a year to show that the
"pathways" are working.
    "If firms fail to introduce investment pathways with
appropriate charge levels, the FCA has not ruled out introducing
a cap on drawdown charges."
    The FCA's proposals will be put out for public consultation.
    


($1 = 0.7641 pounds)

 (Reporting by Huw Jones; editing by Jason Neely and Jane
Merriman)
 ((huw.jones@thomsonreuters.com; +44 207 542 3326; Reuters
Messaging: huw.jones.thomsonreuters.com@reuters.net))