Jean Genie @pensionsgirlie Blog 12 February
When I was in my girlie heyday I was (mostly) a standard size 12 and could pick pretty much pick any pair of jeans from the shelf and know they would fit me. Now that I’m slightly more grey than girlie I have to buy more expensive brands and try everything on if I want to avoid looking like Jeremy Clarkson’s mother.
I mention this because I was reading and commenting this week on the FCA’s latest discussion paper, DP18-01, on “non-workplace pensions”.
This DP is back to BAU for the FCA (if you forgive the excessive acronyms). Rather than the horse/stable door reactions we’ve seen in the press recently, the regulator has looked at successful interventions in the workplace pension market and aims to find out whether the same actions would improve consumer outcomes in the individual pension market. Are individual consumers receiving good value or should they carry over provisions for a price cap and the introduction of Independent Governance Committees?
In general I think they should, although most modern pension plans already carry lower charges. There should also be better communication regarding the options available to holders of legacy contracts, however blanket switching is to be avoided as these contracts may carry additional benefits which would be lost on transfer. The FCA cannot say that it is generally not in the interests of people with safeguarded or other irreplaceable benefits to give them up, then initiate an exercise which forces them to do exactly that.
The personal pension and "insured SIPP" markets are dominated by around 10 providers. As most of these providers also offer workplace schemes it should be possible for them to introduce equal governance standards and most certainly in the interests of their customers. The thing is though that these measures are aimed, quite rightly, at the general investor.
Younger clients and inexperienced investors generally want the same thing from their pension plan – investment growth without pain. Individual pension with managed funds, rebalancing and lifestyle strategies can deliver this. The rather sneering reference to “pseudo-defaults” is unwarranted – so long as these funds do not come with additional and hidden charges they serve a useful purpose.
The issue I have is with older and more experienced investors who may want more from their pension. Given the success of automatic enrolment it is to be expected that many people who take out alternative or additional individual pensions will either not have access to AE, or they want more than a standard workplace pension can give. In this context the rise in SIPP sales since 2012 is not surprising.
These plans may have a core element of features which could be subject to governance, however they also carry additional features which would not. I would suggest therefore that the FCA concentrates on transparency and clear risk warnings rather than caps and IGCs for this part of the market.
Meanwhile I will stick to my designer jeans and whatever else is necessary. Shoehorning (or jeans-horning) can sometimes be an advantage.