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Speaker: Sarah Pritchard, Executive Director, Markets
Hello and thank you for the opportunity to speak here at your annual conference. It’s great to be able to speak to this audience, which covers so much of the UK’s workplace pensions market. I’m Sarah Pritchard, the FCA’s new Executive Director for Markets. I’m responsible for the FCA’s overall market integrity objective. My job is to make sure that the markets work safely and well. And that they do so in a way that protects consumers and promote competition in the interest of consumers. I co-lead our Supervision, Policy and Competition division with Sheldon Mills. But most relevantly for you, I’m responsible for the FCA’s pensions policy, as well as supervision of many parts of the pensions journey - including advice, asset management, and the provision of personal and stakeholder pension schemes. Before joining the FCA, I worked across the public and private sectors, with a focus on financial crime, seeking to bring about safe and secure financial services. Most recently I led the National Economic Crime Centre – a new multi-agency partnership that brings together law enforcement, regulators, prosecutors, policy makers and the private sector to improve the UK’s response to economic crime. That experience showed me the importance of working in partnership with others in order to drive change – and the need to set clear expectations against which progress can be measured. I wanted to speak to you today about a few key themes. Firstly, partnership – I'd like to explain how we partner with others in the pensions space to set out clear and robust expectations and to help ensure that the market works as well as it can for consumers. Secondly, our priorities, and thirdly, predictions for the future. There are many regulators and policy makers that operate in the pensions space. The FCA, the Pensions Regulator (TPR), DWP (Department for Work and Pensions), and of course, HMT (Her Majesty’s Treasury) to name a few. Effective pensions regulation relies on deep partnership between everyone. While we may have slightly different technical rules, we all aim to deliver equivalent good outcomes for consumers, however they save for their pension. To be frank, most consumers have no idea how their pension is structured or who regulates it. Pensions are often described as a 'minefield' - our financial lives survey shows that even people who are confident in all other aspects of their financial lives, find pensions difficult to understand. 31% of adults who are building up their pension don’t know who their pension provider is. And 33% of those who are decumulating their pension don’t know either. The complexities of regulation, and who is responsible for different pension products, is not something that we can expect everyone to understand – so it is important that we act together with others – which is a key theme under our business plan this year. It is only by working seamlessly together as one regulatory family, in collaboration with the industry, that we can deliver the consistent pensions landscape that the public expect. This talk is billed as an update from the FCA, so I’m going to explain our main focus areas, and the regulatory initiatives coming down the track. Broadly, we have 3 main priorities in the FCA: 1. Helping ensure that consumers have the right level of advice and guidance to help them make informed decisions as they both build up, and then access, their pensions. 2. Seeing that pension products are well designed and represent value for money - and that people are able to actively compare products; and 3. Making the pensions market work well, without scams. This means taking steps to stop scams from reaching consumers in the first place (a change that we believe needs legislation, as part of the Online Safety Bill, to bring paid for advertising within scope of that legislation). As well as helping consumers know how to protect themselves from the risks of scams. For most of us, our pension is the largest pot of savings we will ever build. The decisions we take about our pension are ones we have to live with, often for decades, in our retirement. At the same time, we have seen pension freedoms present consumers with a vast range of choices about how to draw on their pension in retirement. These choices really matter but people often need help to navigate them. That’s why we’re focusing on helping to drive more guidance and advice across the pensions industry – that this is provided by the right people - at the right time. Four weeks ago we published our Consumer Investments Strategy, in which we said that we wanted to create the right environment for consumers to invest. We want to see a market in which people can invest with confidence, understanding the risks they are taking, and the regulatory protections offered. We said that we do not want to restrict people if they want to invest, but we want people to be able to access and identify investments which suit their circumstances and attitude to risk. Getting the right advice or support that is needed is key to this. These principles apply for pensions too. We want to see more guidance – and are encouraging firms to give guidance, where this is possible, without crossing the advice/guidance boundary. The boundary is laid out in law and exists for a very good reason, to protect consumers. But we believe that more can be done. We know that there are different risk appetites and tolerances across the industry– but to help industry navigate this we published, in March this year, joint guidance with the TPR for employers and trustees on providing support with financial matters without needing to be subject to FCA regulation. In February this year we introduced investment pathways, so that people who have decided to drawdown their funds, without seeking financial advice, can receive guidance about the options available. Pathways are what is described as 'choice architecture' - people are asked to say what they want to do with their pension funds over the course of the next 5 years. Appropriate investment solutions are then offered, or can be compared by the consumer. We introduced this because we knew that significant numbers of people in drawdown were concentrating only on their 25% lump sum – with many (1/3) not knowing where their remaining pension was invested. Prior to investment pathways (and the cash warnings which were introduced at the same time) people who did not get financial advice were more likely to be defaulted into cash or cash like investments. This is not a good outcome for consumers and is not a sign of the market working well. Although it is early days, initial data from a survey by ABI (Association of British Insurers), suggests that 40% of those who use IPs, are taking up the pathway investment solutions offered. We will be doing a post implementation review after 1 year, i.e after Feb next year, and will be looking to see whether this choice architecture/guidance has improved outcomes for consumers. If it has then this framework could be used in other situations. Our CI (Consumer Investment) strategy talks, for example, about introducing a similar guided sales wrapper for stocks and shares ISAs (Individual Savings Account). We know that accessing a pension will always be a major decision for any consumer, and investment pathways doesn’t replace proper advice and guidance. Where consumers do look for further support from a financial adviser, we are determined that the market provides high-quality advice, which is suitable for their needs. We also want to see the industry regularly signal guidance, directing people to Pension Wise. We are doing several things to support this: We have recently consulted on what we call a stronger nudge, aiming to deliver what parliament has decided under the Financial Services Claims Act, to ensure that people are directed to PW when they seek to drawdown or otherwise access their pension. We have asked for views on any other steps that could be taken to improve take up levels, recognising that behavioural testing to date shows that take up is increased when PW guidance is signalled as part of the normal consumer journey. I would welcome any thoughts you have in the Q&A at the end of this session. And of course, firms are now required to issue ‘wake-up’ packs to people at age 55, and every 5 years after. Wakeup packs signal the availability of PW guidance. Our second focus area is that we want to see well designed products that represent VfM (Value for Money). This is a joint area of focus with the TPR. You may have seen that a few weeks ago we published a joint discussion paper to seek views on how we can define, measure, and work to improve Value for Money in pensions. We are clear that VfM encompasses several areas – investment performance, scheme oversight and costs and charges. We have very recently published rules that make this clear, bringing our rules into line with those that have already been in place for schemes regulated by TPR. The aim of our joint discussion paper is to test how we can get to a position where all participants across the industry are collecting similar data and metrics, which can then enable people to more actively compare products and assess VfM holistically. We want to move away from a singular focus on charges: as the Productive Finance Working Group has highlighted long-term investments - which can in some cases attract higher fees - may still provide good value to those building up their pension. VfM is not just an issue for consumers – it should also be a key focus for Independent Governance Committees (IGCs) and Governance Advisory Arrangements (GAAs). In our recently published rules we set out our expectations for how IGCs and GAAs should assess VfM so that IGCs and GAAs can deliver consistent oversight and challenge. We welcome your input into our joint discussion paper before it closes on 10 December. Finally, any consumer making choices, also faces risks. We want people to be better protected from the risks of scams and know how to protect themselves against them. Our ScamSmart campaign, again alongside the Pensions Regulator, gives knowledge and tools to help people protect themselves from scams. Over one million people have accessed Scamsmart website since its launch in 2014 and more than 20k have seen our warnings about specific unauthorised firms. But more needs to be done. It's important that we also all understand where to go for advice and guidance, and tell our friends/family/colleagues too: In our FCA Business Plan this year we talk about becoming a more ‘Innovative, assertive, and adaptive’ regulator. We are already changing, reflecting the world we operate in, and will continue to do so in the months and years ahead. We still have some way to go before we can be satisfied that we have a market that works well, that protects consumers, and promotes competition in the interests of consumers. I hope I’ve given you a clear view of our current priorities and future areas of focus. By listening to each other, we can make sure we get the details right and deliver that. In that spirit, I look forward to your questions.
Event: Pensions and Lifetime Savings Association
Delivered: 14 October 2021
Note: This is a drafted speech and may differ from the delivered versionHighlights
Partnership
Priorities
Right level of advice and guidance
What are we doing?
Well designed products that represent value for money
A market that works well without scams
And finally – future predictions
Becoming more innovative:
Becoming more assertive:
Becoming more adaptive:
