In Depth: How the FCA will regulate pensions over the next five years

The financial services watchdog published its latest five-year strategy today (25 March), pledging to invest in technology and overhaul its approach to become a more flexible, predictable and efficient organisation. 

It has pledged to be “less intensive” for firms that are clearly “seeking to do the right thing”. 

In line with the government’s wider drive for deregulation to support economic growth, the FCA said it would “significantly” streamline how it sets priorities, as well as review its data collection requirements. 

In a similar fashion to the Pensions Regulator (TPR), the FCA pledged to “digitise and simplify” its authorisation processes to make it “easier and quicker to apply” as well as ensuring that “information received is better quality and follow-up requests are reduced”. 

Four new priorities for financial services

The FCA has set out four overarching priorities for the next five years.

• “Help consumers navigate their financial lives”.

The FCA said it would work with the financial services industry to improve trust, encourage more product innovation, and ensure consumers have the right information and support when making financial decisions.

• “Be a smarter regulator; predictable, purposeful and proportionate.” 

The regulator said it would seek to enhance its processes through adopting new technologies to become “more efficient and effective”.

• “Support sustained economic growth.”

In line with the government’s aim of boosting economic growth, a cornerstone of the FCA’s strategy is to enable investment and innovation and to ensure the competitiveness of the UK’s financial services sector.

• “Fight financial crime.”

The regulator plans to focus on “those who seek to use the fact they are regulated to do harm”. It said it would “go further to disrupt criminals and support firms to be an effective line of defence”.

Delivering at pace

Nikhil Rathi, chief executive of the FCA, said the regulator intended to deliver its strategy “at pace to meet the scale of change we are facing over the next five years”. 

“This strategy sets out our priorities, how we’ll become more efficient and effective and make the choices that shape the financial system,” Rathi said. 

“Our four priorities reinforce one another, and we look forward to collaborating with our partners as we become a smarter regulator, support growth, help consumers and fight crime. 

“We are ambitious for the future and committed to enabling a fair and thriving financial services market for the good of consumers and the economy.” 

Boosting pension saving over the next five years

Within its consumer support priority, the FCA set out several more aims and metrics for measuring its success.

By 2030, the regulator said, it wants to be able to report an increase in in the proportion of consumers that have “certain key products”, including “pensions in accumulation”. Other key products included savings accounts and general insurance.

It said this would indicate that people are “better able to withstand a change in circumstances or financial shocks”.

The FCA also aims to increase the proportion of wealthier consumers that hold “mainstream investments” as part of saving for retirement.

Approximately 70% of adults aged between 18 and 54 have a pension in accumulation, according to FCA data. In addition, 56% of people with £10,000 or more in investible assets hold mainstream investments.

The strategy document also alluded to the FCA’s ongoing work on value for money in pensions, although it did not give any further details.

The regulator stated: “We will drive better value for money in workplace pensions, changing regulation to encourage schemes to invest for longer-term returns, boosting people’s nest eggs and economic growth.”

Targeted support at retirement

Elsewhere in the strategy, the FCA said it would continue to develop its ‘targeted support’ regime, building on detailed proposals published in December. This could involve allowing pension schemes and providers to use limited personal data to offer information and support tailored to certain groups of clients.

“A new regulatory regime for targeted support will allow people who currently do not access financial advice to make the most of their pensions and invest with greater confidence,” the FCA said.

It also intends to review disclosure requirements associated with financial products, to ensure consumers are not “inundated” with information, and to support government-led financial inclusion work to increase support for those on low incomes.

The regulator emphasised that its wide-ranging Consumer Duty regime would “underpin” the new strategy and become “integral to how regulated financial firms treat their customers”.

The FCA added: “That will increase people’s confidence when seeking products and services that meet their needs and match their capacity for risk.”

“A collaborative approach between the regulator, consumer groups, providers and policymakers will be essential to ensure swift implementation of a strong targeted support solution.”

Mike Ambery, Standard Life

Stephen Lowe, group communications director at Just Group, said: “As we approach the 10-year anniversary of pensions ‘freedom and choice’, there is also acceptance that people are not yet getting the support and information they need to make decisions for their financial futures. 

“Certainly, use of regulated advice by people accessing pensions has fallen so there is a lot riding on the success of the changes likely to be brought in following the advice-guidance boundary review, although that is still some way off.” 

Mike Ambery, retirement savings director at Standard Life, said providing tailored guidance to consumers would be “crucial”. 

“It’s vital that we keep up the momentum behind this initiative to make sure that people understand their options and feel confident in making the right decisions for them,” he continued. 

“As we move through the next few years, a collaborative approach between the regulator, consumer groups, providers and policymakers will be essential to ensure swift implementation of a strong targeted support solution. 

“Done well, it has the potential to enable movement from complexity to clarity and deliver meaningful support to help people navigate their retirement with confidence.” 

A changing attitude to risk

One major element of the regulator’s new strategy is a revised approach to how it sees risk.

Ashley Alder, chair of the FCA’s board, said the regulator wanted to “deepen trust in financial services and shift our collective attitude across financial services to risk”.

“To rebalance these risks we must acknowledge, as we have with our proposals to reform the financial advice market, that while the majority may benefit, a minority may not get the outcome for which they hoped.”

Financial Conduct Authority

“Too often the focus has been on the risks of a decision taken rather than the lost opportunity of taking none,” he said. “We want to change that so we can spur growth and improve lives.”

In his introduction to the five-year strategy, Alder said “rebalancing” the regulatory view of risk could further support economic growth, “which is crucial if finance is to serve the country in not only meeting the challenges ahead, but of thriving amidst them”.

The FCA said the UK’s financial system was substantially stronger and more resilient than before the financial crisis of 2007-09 due to regulatory reform.

However, it emphasised that “regulation should be about enabling informed risk to be taken, not eliminating it entirely”.

“We need to focus on risks that regulation should allow in the context of our current environment, rather than that of the past,” the FCA stated. This approach required an “open debate” about risks, including regulatory, market and consumer risks.

Crucially, the regulator said that its rebalancing efforts would mean acknowledging that “while the majority may benefit, a minority may not get the outcome for which they hoped”.