FT Adviser (04/03/2019) – The number of self-invested personal pension providers catering for non-advised clients could shrink due to new rules being considered by the Financial Conduct Authority.
As part of its Retirement Outcomes Review, the FCA proposed pension providers offered their non-advised customers a choice of investment pathways to meet their retirement objectives.
This was after it found many consumers were solely focused on taking tax-free cash from their pensions and were “insufficiently engaged” with deciding how to invest funds that moved into drawdown.
The new rules will also apply to Sipp providers which have more than 500 non-advised clients going into drawdown each year, which means some operators, more focused on advised consumers, could end up withdrawing their services from the market as it would prove too expensive to introduce these pathways.
According to research from the regulator published in the Retirement Outcomes Review consultation paper, 18 per cent of Sipp providers said they would implement investment pathways, including the largest operators by number of non-advised consumers.
Some 39 per cent said they would rather restrict their drawdown offering to advised consumers only, with the remaining 42 per cent being unsure.
However, the 18 per cent who said they would implement investment pathways have 76 per cent of the non-advised Sipp plans that went into drawdown last year, the FCA stated.
Ricky Chan, director and chartered financial planner at IFS Wealth & Pensions, said that he generally agrees that the market servicing non-advised drawdown clients could shrink slightly as it wouldn’t be commercially viable for some providers, whose main focus is in the advised market, to invest resources in suitable investment pathways for a small part of their business.
He said: “But I’d imagine that they’d still need these investment pathways available for any orphan clients approaching retirement.
“As with insured personal pensions providers, we already see many offering ‘Lifestyling funds targeting drawdown’, so I suspect that the investment pathway solutions offered would be based on a similar approach, but clearly this requires investing resources to develop, and have ongoing governance/monitoring over them.
“It also highlights the importance of clients seeking professional advice before going into drawdown so that they’re informed about the risks involved, the importance of reviewing funds, and that it isn’t just a one-off decision. For all its advantages, I think that one of the downside of default funds/investment pathways is that it removes the responsibility away from the consumer and may lure them into a false sense of security.”
Full article link: https://www.ftadviser.com/pensions/2019/03/04/fca-rules-could-shrivel-sipp-market/
