It is in many ways too early to tell what the full pension freedoms story is. But it requires a major shift in communication needs that has not been examined in enough detail in the five years since the policy was introduced. The industry may now need to provide continuous support from when people start saving to the end of their lives. The ABI has produced a guide to help demonstrate what good practice could look like in this under-explored area of in-retirement communications.
The policy and regulatory interventions since 2015 have focused primarily on early communications, advised customers and investments – the FCA identified good practice in the market and mandated investment pathways to make investment decisions much easier for those seeking to take a flexible income. But this only goes so far.
The ABI has written a separate report on future-proofing the freedoms, which identifies the key outstanding issue of customers making ongoing in-retirement decisions without receiving advice. Communications are essential to help customers make many more decisions on an ongoing basis, including, to name but a few:
- Whether (and when) to buy a guaranteed income for life
- At what rate to draw down income
- How to plan for beneficiaries
In the modern world there are so many different ways that a provider can communicate with people and many of them can be utilised to help people make better decisions. Applications, newsletters and quizzes are just some of the ways that providers are seeking to help their customers make the most of their savings after the point of retirement.
There is however a limit on what they can do due to the current positioning of the advice/guidance boundary. Providers are naturally cautious of crossing this boundary and there are some simple things that are currently within the perimeter that could be outside it. Simple things like a rule of thumb for rates of drawdown or allowing “people like you” type examples could really help consumers.
Investment pathways also give providers the ability to see when a consumer’s behaviour – like how much they withdraw – conflicts with their stated intention. To this end, the FCA have mandated that firms provide “incompatibility statements” in this context, but these could easily come close to the boundary. Providers feel duty-bound to go beyond the minimum and help their customers make the best decisions they can, but we must also look at the regulatory framework and the places where it is stopping this happening.
Meanwhile, DWP are considering whether and how to replicate the FCA’s rules, when some occupational schemes would like to introduce something more comprehensive. This could be a welcome addition to the retirement market, if it is in addition to investment pathways – but a shift of the advice boundary would help them to deliver it. It would also help the Money and Pensions Service, who will be better able to serve their users with impartial guidance that goes further in helping them make decisions.
Calls for a change to the advice/guidance boundary are not new. But the need to help customers in retirement to make the right decisions for them exposes the need for a rethink, which would enable the pensions sector to deliver the shift that is needed.