FCA proposal would require guidance for post-retirement investing

The Financial Conduct Authority (FCA) is proposing new rules that would require workers entering retirement be provided with a set of basic “investment pathways” to guide their post-retirement investing, the U.K. regulator announced Monday.

The FCA’s proposals aim to address its concerns that too many pension plan members are focused on receiving their cash and don’t invest their pension assets properly. To combat the issue, the regulator proposes that clients who don’t take investment advice be given a choice of four basic investment pathways to guide their post-retirement investing. In addition, the FCA proposes that pension investments not default to cash unless the client specifically requests that option.

“Our Retirement Outcomes Review identified that many consumers are focused only on taking their tax-free cash and take the ‘path of least resistance’ when entering drawdown. This can often mean that the rest of their drawn down pension pot is not invested in a way that meets their needs and intentions. We found that around one in three consumers who have gone into drawdown recently are unaware of where their money is being invested. This leads to poor consumer outcomes,” says Christopher Woolard, executive director of strategy and competition, FCA, in a statement.

“Our proposals on investment pathways will help non-advised drawdown consumers select from four relatively simple choices, designed to meet their broad retirement objectives so that they can maximize their income in retirement,” he adds.

The FCA estimates its proposed measures could save retirees £25 million ($43.5 million) per year in lost income.

Also Monday, the FCA announced new sets of rules requiring:

• “wake up packs” to better inform workers approaching retirement about their investment options; and
• better ongoing disclosure for retirees, including annual disclosure of their pension charges in dollar terms.

The proposals on investment pathways are out for consultation until April 5. The rules regarding wake-up packs would take effect in November, while the new rules regarding cost disclosure would take effect in April 2020, subject to consultation.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.