FCA Launches Study Into Non-workplace Pensions

What happened?

On 2 February 2018, the Financial Conduct Authority (FCA) launched a study into the state of competition in “non-workplace pensions”.  Citing potential concerns, the FCA announced its intention to look for evidence of consumer harm, and if any is found to propose remedies.  

The FCA’s study follows a 2013 market study into “defined contribution workplace pensions”, which found weak competition between pensions providers, and resulted in a number of remedial steps.  

The non-workplace pensions now under scrutiny include “contract based personal pensions, stakeholder pensions and self-invested personal pensions”.  Insurance companies, asset managers, private wealth managers and pension platform providers should take note.

Why does this matter?

The FCA believes that the non-workplace pensions market may exhibit many of the same competition issues that were identified in the 2013 market study into defined contribution workplace pensions.  

In short, the FCA is concerned that there is weak competition between pension providers because customers lack the incentive or understanding to choose or switch to a product that is good value for money.  

Factors that might contribute to this “demand-side weakness” include: product complexity; barriers to switching; a ‘set and forget’ mentality; and default fund selection.  The FCA also intends to look closely at charges levied by pensions providers, in particular: annual management charges; the stakeholder pension charge cap; paid-up and exit charges; charges on policies sold before 2001; and the comparability and transparency of charges generally.

If the FCA identifies evidence of consumer harm, it will formulate “appropriate proportionate interventions”, which could have immediate consequences for pensions providers and other industry players.  For example, the OFT’s market study into workplace pensions resulted in a number of remedial steps including: a cap on default fund charges; a ban on differential charging practices; a ban on consultancy charges; and an independent audit of certain pension schemes. 

What happens next?

• The FCA’s discussion paper seeks input from industry stakeholders including: pension providers; asset managers; fund managers; private wealth managers, pension platform providers; consumer groups; and individual consumers.  The discussion paper sets out a number of questions, and the deadline to respond is 27 April 2018. 

• In parallel, the FCA will conduct consumer research to determine the drivers and behaviours specific to non-workplace pension customers.  

• After receipt of responses to the discussion paper, the FCA will issue information requests to specific industry players.

• In late 2018, the FCA will publish its preliminary conclusions.  To the extent the FCA identifies evidence of consumer harm, it will consult on potential remedies.

How can Cadwalader help? 

Cadwalader’s antitrust team is one of only a few in Europe to focus on the financial services sector. We regularly represent companies before the FCA in antitrust matters, and have an in-depth understanding of its priorities and procedures.  We can help your company to advocate its views and preferred outcome, including through drafting responses to consultation papers and information requests, and preparation for meetings with the FCA.

If you would like to discuss the issues arising in this alert, or how we can help you more generally, please contact Vincent Brophy or Tom Bainbridge.

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