Expert calls for consistency as part of FCA's retirement review

The Retirement Outcomes Review (ROR), the terms of reference for which have just been published by the Financial Conduct Authority (FCA), comes at a time of "huge upheaval" for the UK pensions industry, according to Tom Barton of Pinsent Masons, the law firm behind Out-Law.com.

The ROR is part of a programme of work announced by the FCA to follow up on its market review of retirement income, which concluded in early 2015 just before new flexibilities in relation to pension access came into force. The work will take a closer look at how easily consumers can compare products and switch providers and how the reported increase in non-advised sales of more complex retirement products is affecting consumers, as well as the extent to which regulation is preventing product innovation and holding up new market entrants.

"Deciding how to use pension savings is one of the most important decisions people will make," said Christopher Woolard, the FCA's director of strategy and competition.

"For a competitive and innovative market, it's crucial that the market developed in a way that allows consumers to engage with their options, shop around and switch providers where appropriate. We also want firms to compete hard for business, offering good outcomes for consumers through lower prices, products and services that meet customer needs, better customer service and wider choice," he said.

Barton, a pensions expert at Pinsent Masons, described the FCA's update as "a helpful summary of work in progress", but added that the industry needed to see this "form part of a wider, consistent policy in pensions and long-term savings that includes Treasury developments such as the lifetime ISA (LISA) and the review of auto-enrolment and associated charges, scheduled for 2017".

"The FCA is currently involved in a lot of important work, getting under the skin of the market and trying to ensure a better functioning system for consumers. This is a challenge since it comes off the back of huge upheaval in the form of auto-enrolment, charges and governance developments and 'Freedom and Choice'. 'Brexit' and digital disruption/innovation in technology is also taking the market in unpredictable directions," he said.

"There is an opportunity on the horizon for a number of loose ends to be pulled together, and ideally a depoliticised pensions and savings commission would be put in place to formulate and deliver a long-term vision. Unfortunately the short term tax wins available through adjusting pensions policy mean that a commission does not appear on the cards," he said.

The FCA is seeking input from the pensions industry on a number of specific questions by 31 August 2016, which it will use to inform its review. It has asked for evidence of to what extent consumers can compare and choose between the larger range of retirement products and options available to them, given what it uncovered about the difficulties of shopping around for annuities as part of the retirement income market review. The regulator wants to understand whether consumers can "easily compare products, shop around, switch providers where they are not receiving what they want, and make good, informed decisions", it said.

The regulator has also asked whether the greater variety and complexity of retirement products available is putting them off engaging in the purchase process, and the extent to which firms' business models have affected consumer engagement and switching. It is also seeking examples of "overly burdensome" regulation that may "constitute disproportionate barriers to entry or prevent useful product innovation".

To accompany the terms of reference, the FCA has also published the results of behavioural testing it commissioned to test the effectiveness of the annuity comparison remedy that was proposed as part of last year's review. It intends to make this compulsory for firms, after the testing showed that the use of comparison tools at the point of purchase increased shopping around from 13% to 40%.