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Article | Pensions Briefing

What do the FCA’s new retirement rules mean for employers?

Supporting employees at retirement

Defined Contribution
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By Anne Jones | March 13, 2019

Anne Jones looks at the new requirements and considers how an employer can ensure all employees can get the best value from their retirement savings

As the Financial Conduct Authority (FCA) releases new rules covering retirement support for contract based pension arrangements, Anne Jones looks at the new requirements and considers how an employer can ensure all employees can get the best value from their retirement savings.


The FCA published the results of its review of members’ retirement options last summer. The findings were a cause for concern, with a quarter of new drawdown members saying they would prefer a guaranteed income for life over flexibility, and individuals who could have withdrawn 13% more income each year from their drawdown account by shopping around for lower charges. As part of this review, the FCA promised to enforce changes to support better member outcomes at retirement.

The first new rules were confirmed by the FCA last month. From November 2019, providers of contract based pension arrangements will now need to provide ‘wake up packs’ to all members from age 50 and every 5 years thereafter. Providers will still have some freedom around the content of the wake up packs, but they need to include a single page summary document as well as various other educational materials, for example retirement risk warnings, the Money and Pensions Service factsheet (or similar) and details of the options open to individuals. Importantly, however, the wake up packs cannot include any marketing materials. If members wish to purchase an annuity, the provider must establish whether they could be eligible for a higher income due to health or lifestyle issues. The enhanced annuity quote must then be provided to the member. When a member enters a drawdown arrangement, they must be provided with a key information summary and then provided with annual information about their costs and charges thereafter.

In addition, the FCA launched a follow up consultation, proposing investment pathways for drawdown products – automatic investment journeys dependent on what the member says they wish to use their savings for. At the same time, the FCA is proposing to ban the use of cash funds as a default investment strategy for drawdown arrangements.

This is obviously all good news and a move in the right direction for contract based pension schemes, but what does it mean for your employees?

Many of those retiring over the next few years will have both defined contribution (DC) and defined benefit (DB) benefits. To make the most appropriate decisions, members will need to take all their retirement savings into account. Employers are in the best position to ensure the right support is provided across the savings their employees have built up with them. The first step, therefore, is to understand what information is already being offered. What support does the pension provider offer? Do different groups of members have access to different support? Are there any gaps?

The majority of providers can, understandably, only give guidance and advice on their own products and solutions. Are members engaged and informed enough to understand that there might be other, more appropriate, retirement solutions in the wider market? If not, what support could be provided to resolve this? Wider-reaching wake up communications can help members start to consider all of their savings and the options they have.

Many schemes now provide transfer values in DB retirement quotes to help the member research the options open to them. However, if members are considering their DC savings from age 50, they also need to be informed about the options for their DB benefits at that point.

We have seen marked changes in member behaviour in schemes which have introduced individual guidance covering all of a member’s benefits. Whilst many are able to come to a final decision about their retirement savings on the basis of such guidance, others have been far more readily prepared to seek, and more importantly pay for, impartial regulated financial advice. The holistic guidance enables members to understand the added value full financial advice would bring and why they may need it.

Our pension strategy survey highlighted that around 80% of our clients are planning to review their retirement support and options by the end of 2020. Some may now be waiting to see how their contract based provider will respond to the new requirements by 1 November 2019. Others believe that improvements are needed in a much shorter timeframe as the number of retirees increases and they are expected to make increasingly complex decisions about their future. Either way, building an appropriate retirement journey across all savings is vital.

Providing the right support to members on this challenging journey will help ensure that the money the employer has contributed to members’ accounts is not frittered away on bad decisions and poor value arrangements.

To understand the support Willis Towers Watson is able to provide in designing your retirement journey, please contact your Willis Towers Watson consultant about Retire Able.

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