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FCA consultation on retirement guidance: Key recommendations

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Hargreaves Lansdown has submitted its response to the FCA’s consultation on the Guidance Guarantee CP14/11 (which closes today 22.09.2014). This consultation raises a number of critical issues around the customer journey into retirement from 2015 onwards. 

In recent years Hargreaves Lansdown has been at the forefront of work to improve the benefits investors receive from their money purchase pensions (see below).

Our key recommendations include: A single, well-governed directory of retirement income providers; Abolition of the wake-up packs, to be replaced with a simple pensions passport

Cost of Guidance Guarantee should be widely shared across industry; Consistent regulation of all forms of retirement income withdrawal, including Uncrystallised Funds Pension Lump Sums

Tom McPhail ‘For too long it has been too easy for investors to be led into buying uncompetitive or inappropriate retirement income solutions. This is a critical area of investor protection and one where right now politics and regulation are not necessarily pulling in the same direction. We have a window of opportunity to fix this problem ahead of 2015.’

‘We have presented a package of measures which we believe will ensure that investors not only shop around for the best retirement income solutions for their needs, but do also actually then go on to buy a suitable and competitively priced product.’

Research shows that most people are aware of their right to shop around, however they find it confusing, difficult and in many cases believe it isn’t worth pursuing. The Pensions Passport has been designed to replace the pre-retirement wake-up packs. It is a simple statement of the value of an investor’s pension pot and acts as a trigger to initiate the pre-retirement shopping around process. Martin Wheatley, the Chief Executive of the FCA has spoken repeatedly about the need to stop sending investors lots of confusing information and to replace it shorter, clearer messages. Replacing the Wake-up packs with the Pensions Passport would be an excellent place to start.

If the wake up packs are not abolished and replaced with the Pensions Passport (a concept pioneered by the Pensions Income Choice Association), investors will not be given a fair chance to shop around. If the industry and relevant public bodies cannot agree on a single, well-governed directory of suitable retirement income solution providers, consumers will not know where to turn for retirement income solutions. If Uncrystallised Funds Pension Lump Sum withdrawals are not subject to the same regulatory controls as Drawdown, investors risk running out of money simply because they used ‘the wrong kind of drawdown.’

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