I’m conscious that the title of this blog is not simple, the business of measuring value from pensions is easy in retrospect but hard in prospect. I am glad that the FCA aren’t ducking the issue.
The FCA has published its business plan for 2024/5. I’m very pleased to read this
Credit Jo Cumbo
The UK’s financial regulator is to “test” the transparency of charges levied on pension savings held by millions of retirement savers. The work was outlined in the FCA’s business agenda published this week.
“Overall product value” is another good formulation from the FCA. The problem many have with their “pensions” is that they do not come as a “one and done” solution but a more like a flat-pack IKEA solution where you have to assemble the apparatus for spending your savings yourself.
From my experience, the overall product value of a pension cannot be assessed in retrospect, the grave’s a fine and private place, but it is not a place for retrospective VFM assessments.
So assumptions must be made on the “deal” while we are still alive and most of us pay most attention to our pension once we’ve built up our pot and are looking at what to do with it. In short, the FCA needs to start thinking about the pension as well as the pot.
Some (well me especially) will say that this is not a moment too soon. Many of us have already reached the tipping point when we want to “crystallise” our savings, draw our tax free cash, set our income levels and work out to what extent we can afford to retire. Very few people will retire on the 2/3 final salary formulation , most of us will cobble something together to get by with a bit of dignity, few will say that where we are is where we thought we’d be when we started work up to 50 years ago.
We look to the FCA and TPR to ensure that the choices we are offered do no harm and can do good, it is up to us what choices we make but we expect to have information presented to us in a way that – even if we have no advice – we can make informed decisions.
Having spent a day re-reading the PERG regulations in the FCA’s handbook, I am impressed by just how much thought has already gone into these questions. We have a regulation for everything and believe it or not, they do add up to a coherent whole. The problem is not in the regulatory framework but in its interpretation.
Here it seems important to remember that no regulations can cater for the unexpected and “innovation” brings the “unexpected”. There will be situations where the “spirit of the regulations” is invoked and sadly this usually requires some kind of legal battle or at best a lengthy period in the innovation sandbox!
There will be other situations where value for money (or the opposite) become clear and regulators can wave innovation through because it is clearly for good. Making these calls requires regulators who are not just experienced but are in touch with the common sense principles that underpin phrases such as “value for money”.
The Regulator is right to test value for money across “value chains”. We cannot have parts of our pension system that are subject to scrutiny and parts which are not. We need to see what the product looks like once the flat-pack has been assembled and see if savers get as good a deal when they’re spending their savings as they did when they built them up.
Necessarily this touches on the vexed issues around sales , advice and guidance. Rather than open up the Pandora’s Box, let’s just remind ourselves of just how tough that job is for the FCA. The diagram below is now a couple of years old and shows that there are no easy fixes here.
