FCA ‘not convinced’ of charge capping drawdown, Bailey says

The Financial Conduct Authority’s chief executive, Andrew Bailey, has said he is “not convinced” of introducing a charge cap on drawdown products.

Delivering a speech during a conference in Gleneagles, Saturday 15 September, Bailey said the regulator had considered whether there should be charge capping, a point that has been raised by the Work and Pensions Committee.

“At this stage we are not convinced, though the option is not closed off, and would never be so. But in a market where we want to see evolution and innovation it is hard to know the right price, and there could be negative effects on innovation and competition. As a point of reference, the fee level of 0.75% on default arrangements in accumulation would at the least prompt the question of why fees for some other products are higher for some consumers,” he stated.

“Our intention is to review the charges in the light of how they evolve, as part of the review we will undertake around a year after implementation of rule changes arising from the Retirement Outcomes Review. If we find problems with charges, then capping will be on the table as a response. We have to do all that we can do enable individuals to take these decisions, and we have to be prepared to intervene early,” he said.

However, Bailey acknowledged that drawdown charges can be “complex, opaque and hard to compare”, stating that products can have as many as 44 charges linked to them. He said that this makes it difficult for consumers to compare and shop around for the best products for their needs, and this limits competitive pressures on providers.

Bailey still believes that the pension freedoms are an “appropriate response” to changes in the lifetime model, and uncertainties around what can happen in the future. However, he said that the industry must recognise that these changes are another part of a longer shift towards making individuals responsible for retirement saving and the complex decisions that go with it.

“We have to do all that we can do enable individuals to take these decisions, and we have to be prepared to intervene early, while the market is still developing. The benefits of doing this will come if we avoid unwanted practices becoming entrenched and over time consumers have confidence in their pensions.”

    Share Story:

Recent Stories


Conveyancing Transformation
Adam Cadle talks to ULS technology CEO Jesper With-Fogstrup about making home moving a pleasant experience

FREE E-NEWS SIGN UP

Subscribe to our newsletter to receive breaking news and other industry announcements by email.

  Please tick here to confirm you are happy to receive third party promotions from carefully selected partners.