From the blog: It is bizarre that the Work and Pensions Committee is questioning whether people understand the cost and value for money of their pension products when the Financial Conduct Authority has only just published research that answers their question.
Its Retirement Outcomes Review states that over a third of consumers who had opted for pension freedoms had no idea where or how their money was invested.
If someone cannot understand the simplest level of information around their contract, they have little or no chance of understanding the costs involved or any concept of value for money.
Click here to read the full blog post
Its Retirement Outcomes Review states that over a third of consumers who had opted for pension freedoms had no idea where or how their money was invested.
In the search for better outcomes, the imposed regulations are having the opposite effect
If someone cannot understand the simplest level of information around their contract, they have little or no chance of understanding the costs involved or any concept of value for money.
Better information, not more information
It seems to me we are starting another war on charges but missing the real issue.
For years we have had regulators focus on transparency – using prescriptive disclosure regulations to improve outcomes for consumers – but the findings of the recent FCA paper show that this is not delivering what the consumer needs.
Disclosure documents are not accessible to consumers. A typical pack comprising a suitability letter, illustration, key investor information documents for funds, Pension Wise brochures, and a key features document can easily result in 50 pages of hard text – it is not realistic to expect the average consumer to read through all of this and understand it.
It may all be very pertinent, but that evidence from the FCA shows the message will not be delivered to a large chunk of customers.
Regulation has made things worse
When you then add to this all the different types of charges broken down in the name of transparency, such as tiered charges, performance-based fees, fund management fees etc, it stands to reason that the consumer is left struggling.
It is ironic that in the search for better outcomes, the imposed regulations are having the opposite effect.
The truth is most people are not into reading reams of chunky text or taking a PhD in mathematics to work out how all their charges work together.
Less is more, and you have a better chance with a simple picture, some light text and key numbers – look at many of the simple tools provided to consumers by online-only providers such as Nutmeg and PensionBee, which people understand because they are straightforward.
Banish the jargon
Most consumers want to know what they are getting, if it is suitable and how much it costs. It is that simple. Formal illustrations and documents are read long after the decision to buy has effectively been made and are therefore redundant to the consumer.
Developing tools customers will actually use to make decisions could give us the type of information and disclosure experience our market needs. More use of interactive video and online experiences are much more likely to empower 21st century savers.
For all regulators’ flaws, some of the proposals in the recent FCA paper, such as disclosing charges in pounds and pence, make a lot of sense. But we need to go further, ensuring that we simplify all elements of products, funds and advice as well.
If there is a widespread lack of value for money, then this should be addressed in the obligations the FCA places on product providers – trustees of workplace schemes will already be on the alert after the Competition and Markets Authority’s report on investment advice.
A new roadmap for disclosure should focus on keeping things simple for investors. Reduce the information overload.
Rory Gravatt is a consultant at Altus Consulting
