CTC software has taken the time to compare the 139 page FCA CP15/30 Pension Freedoms paper with the outcomes of their recent client conference on Pension Freedoms. The conference reviewed with clients how Pension Freedoms propositions were being offered and what CTC clients think about the new pensions flexibility. Forty seven representatives from twenty-one of CTC’s clients attended representing insurers, wealth managers and advisers.
Survey results below are from a segment of CTC's client base and are not attributable to individual CTC clients. Views expressed are that of CTCs.
CTC asked the clients who they believe is responsible for protecting consumers from Pension Freedoms.
Clients were then asked which area of the consumer cycle should be the priority of the regulator. The earliest stage “awareness” came out top primarily because once a person makes a pension freedoms choice at retirement it is difficult, if not impossible, to change later on. Currently customer choices are based on poor understanding and sources of information and guidance are ineffective as witnessed by the low take-up of Pensions Wise.
Illustrations and growth rates
FCA CP 15/30 states that the regulator does not want clients to be directed to a particular product. Therefore providers and advisers will need to expand their client discussions to embrace drawdown and other retirement products on offer. The regulator suggests that illustrations are provided to compare all the product options offered by the provider. CTC believes that all pension providers need to review the capability of their illustration systems and ensure they can provide multiple illustrations that cover all their retirement product range compliantly and cost effectively. This will also bring emphasis on a more price based comparison and growth rates need to be uniform across the drawdown products so a true comparison can be made by consumers.
From the annual CTC growth rate survey the findings are concerning due to the difference in the range of growth assumptions used and therefore CTC agrees the FCA should clarify the methodology to be used around growth rates.
How the industry should be communicated with
Since the introduction of Pension Freedoms a “wake-up” pack is issued to those at least 55 years of age. The FCA is consulting on how providers can provide information on the sustainability of income to provide a guide as to how long it can last so it does not run out. CTC believes that better awareness of future retirement planning choices should commence from the point they start saving. This should be provided online when the customer wants it.
CTC also believes that providers should seek to facilitate the entire customer journey; an example is where providers might present market comparisons to a customer from competitors. Clients should have a “one touch experience” where their information is provided via a website.
Defined benefit pensions
The FCA has found that many pension companies will not accept insistent client pension transfers from Defined Benefit (DB) schemes and many will not accept DB transfer under any circumstances.
CTC asked the attendees at its client conference how many DB scheme members they think would transfer to out to access Pension Freedoms.
CTC estimates that the average vesting pension from a DB scheme is £120,000 and from a DC scheme £40,000. There are 3 million active members of funded DB schemes (this number is 9 million if deferred members are included). Currently everyone with a DB scheme worth over £30,000 needs to take regulated financial advice if they wish to transfer, so the FCA recognises that quality financial advice is crucial for DB transfers, due to the guarantees that will be lost.
CTC believes that pension freedoms should be available to everyone. If the FCA do decide to allow equal access to Pension Freedoms from DB and DC, this will result in a new huge financial advice pension transfer requirement. Based upon the CTC conference findings shown above, that results in an unprecedented level of assets to be invested and advised upon.