The Financial Conduct Authority's Edwin Schooling Latter explains how the regulator is working to ensure that pension savers get the most out of the money they save, through ensuring good decision-making and strong governance.
The follow-up question is what the Financial Conduct Authority can do to ensure good pensions in retirement. This requires a longer answer. It is also complicated – some elements of this are outside our control.
Ultimately, we want people’s retirement savings to work as hard as they do
Nine and a half million workers had been auto-enrolled into a workplace pension by the end of March 2018. However, few employers or employees are making more than the minimum contributions. The rise in self-employment and the gig economy also leaves a risk of people slipping through the auto-enrolment net. But it is not the job of FCA rules to make people contribute or to tell them how much.
What FCA regulation can do is help to ensure that savers get the most out of the money they do save. This will become increasingly important as defined contribution pensions replace the defined benefit schemes more common in the past.
This is the aim of our work on independent governance committees. We want those committees to be a strong and effective voice representing the interests of pension savers. It is also the objective of our ongoing review of non-workplace pensions, which will look at both charges and consumer understanding.
We can also make a difference when it is time for people to access the money they have saved. Earlier this year we published our Retirement Outcomes Review. This aims to help savers make the best decisions for their personal circumstances when using the pensions freedoms and accessing their pensions without taking advice.
Consumer pensions journey a priority for regulators
Our review found that many people would benefit from more help. We found, for example, that people holding their drawn-down pension savings in cash could increase the income from their pot by up to 37 per cent over 20 years by holding their funds in a mix of assets. At the moment, many DC pots are relatively small. But as they grow, good financial decision-making will become more important.
Our joint strategy with the Pensions Regulator sets out a vision for our work in the pensions sector over the next five to 10 years. It aims to encourage a pensions and retirement income market in which pensions are well-governed and deliver value for money – and to give savers the tools to make well-informed decisions.
One priority area for joint work is to understand more about the consumer pensions 'journey', and how people interact with pensions throughout their lives. We will consider how the information given to pension savers by their pension providers combines with guidance and advice services to help consumers make the right choices.
Our survey in 2017 of almost 13,000 UK consumers showed that just 35 per cent of 45-to-54 year olds have given significant thought to how they will manage in retirement. If we can find ways of making it simpler for consumers to track and engage with their pension savings, this is likely to improve provision.
We will work energetically to ensure that pension products are designed, governed and operated in the best interest of savers. Our rules will seek to ensure consumers have the information they need, at the time they need it, to make the right decisions with their retirement income. Ultimately, we want people’s retirement savings to work as hard as they do.
Edwin Schooling Latter is acting director of markets and wholesale policy at the Financial Conduct Authority
