The Financial Conduct Authority (FCA) has released a discussion paper over concerns about private pension products. This follows recent investigations into workplace pensions, which include defined benefit and defined contribution schemes.
Chris Woolard, the FCA’s executive director of strategy and competition said, “we believe it is now right to look at the other side of the picture and assess whether competition is working in non-workplace pensions.”
“A diverse group of people save into non-workplace pensions and it is a growing market,” he said.
⇒ Private pensions – the statistics
Approximately £400bn of assets under management (AUM) are held within private pensions. This is more than double the amount invested in contract-based defined contribution workplace pension schemes.
SIPPs, one specific type of private pension, have seen a large increase in sales since the Retail Distribution Review in 2012.
The chart below, which is from the FCA’s discussion paper, shows the sales of different non-workplace pension products since 2012.
⇒ Reasons for the investigation
Despite the overall increase in sales, the FCA fears that the services provided, the charges that consumers pay, and the ability to swap, varies massively between products and their providers.
This could be due to a lack of competition, which the regulator aims to encourage.
There are a number of issues the FCA wants to look into. These include:
- Charges: whether providers are competing on charges, and if private pension products are too expensive.
- Product complexity: whether it is easy for consumers to tell the difference between private pension products and choose which is best for them.
- Consumer engagement: factors which may affect a consumer’s ability to make decisions regarding their pensions.
- Propensity to switch: whether consumers can easily switch to products which are more competitive.
If anything is found to be harming consumers, the regulator will implement “proportionate interventions” to solve these problems.
It has been emphasised by the industry that the FCA needs to clearly distinguish between private pensions where the customer uses an adviser, and those where the customer does not. Blanket action could actually damage one part of the market if the FCA is not careful.
When it comes to deciding which pension product you would like, it is vital that you take the time and effort to look into each option in a great level of detail. The services you receive and the charges you must pay all vary between product and provider. Even half a percent in terms of charges for example, equates to thousands of pounds by the time you retire.
Even if you use an adviser, it is your job as the consumer to know as much as you can about what product you will use, to avoid any costly mistakes. You cannot afford to rush these decisions, even though retirement may seem ages away.
It is these mistakes that people make that have led the FCA to looking into the private pensions sector. Make sure you are well-informed before you finalise your pension plan.