LONDON (Reuters) – Britain’s markets watchdog ought to cap costs on drawdown of pension financial savings after “glacial” progress in stopping clients being ripped off, a senior lawmaker mentioned on Thursday.
Britons have been capable of money of their pension pots because the nation’s pensions market was opened up in 2015. But a overview by the Financial Conduct Authority (FCA) printed on Thursday found that persons are not all the time getting the most effective deal and that there’s a lack of transparency on costs.
“The FCA found that, while consumers have welcomed the freedoms, some are at risk of harm,” the regulator mentioned, including it was contemplating a cap on costs.
The regulator singled out the treatment of customers who don’t take recommendation when drawing down pension cash, or taking money out of a pot and reinvesting it to acquire a daily retirement earnings.
Between April 2015, when the brand new freedoms had been launched, and September 2017, over 1.5 million direct contribution pension pots had been accessed, with most pots beneath 30,000 kilos ($39,260).
More than half of the totally withdrawn pension pots weren’t spent however transferred into different financial savings investments, usually for drawdown.
This doesn’t all the time present worth for cash as folks sometimes use their current supplier quite than store round, the FCA mentioned.
“The FCA found that charges vary considerably from 0.4 percent to 1.6 percent between providers and can often be complex, opaque and hard to compare,” it mentioned.
The watchdog mentioned it will give business a yr to point out that the reforms it was proposing had been truly driving down costs, earlier than revisiting a doable cap on charges.
Frank Field, chair of parliament’s work and pensions committee, mentioned the FCA reported “devilishly glacial progress” in the precise course, discovering that individuals had been being “ripped off by unjustifiably high and complex charges”.
“But the FCA wants another year to mull over a charge cap while life savings are shamelessly milked. There has been more than enough warning. They should just introduce it,” Field mentioned.
Ros Altmann, an impartial pensions professional and former pensions minister, mentioned folks had been being rolled over from pensions which do have a cap, to drawdown funds the place they don’t know what they’re paying.
The Association of British Insurers mentioned it agreed a less complicated presentation of costs was wanted to assist clients store round.
The FCA mentioned some merchandise had pricing constructions with as much as 44 completely different costs, and one in three drawdown customers didn’t know the place their cash was being invested.
Providers had been “defaulting” clients into money or cash-like property when earnings could be 37 % larger over 20 years if the cash was invested in a mixture of property, the FCA mentioned.
“In many cases, keeping money in a pension would have resulted in better returns, on average, and in paying less tax,” the FCA mentioned.
The watchdog proposed that pension suppliers ship their clients a “wake up pack” from the age of 50 with a one-page doc spelling out the dangers earlier than tapping a pension pot.
It can also be consulting on requiring pension suppliers to supply “investment pathways” comprising three “value for money” choices on what to do with cash taken out of a pension.
A cost of zero.75 % must be used as some extent of reference, and corporations would have a yr to point out that the “pathways” had been working, in any other case a cap was “highly likely”.
Ian Browne, pensions professional at Old Mutual Wealth, mentioned a cap would hinder innovation and even high quality.
The FCA’s proposals will probably be put out for public session.
($1 = zero.7641 kilos)
Additional reporting by Carolyn Cohn; Editing by Gareth Jones and Mark Potter