Retirement Outcomes Review

Final report (PDF)

The final findings report includes 5 annexes:

• Annex 1: Scope, approach, and summary of the interim report (PDF)
• Annex 2: Regulatory developments in the market (PDF)
• Annex 3: Feedback on interim findings and our early thinking on remedies, and our response (PDF)
• Annex 4: Data collection and analysis (PDF)
• Annex 5: Non-Advised Flexi-Access Drawdown Pensions Customer Research (PDF) (NatCen Social Research and the Pensions Policy Institute)

We have subsequently published Policy Statement 19/1 which sets out the new rules and guidance on our first package of remedies from the Retirement Outcomes Review. 

We have also published Consultation Paper 19/5 which sets out our second proposed package of remedies from the Retirement Outcomes Review. For these remedies, we are consulting on proposed changes to our rules.

Our findings

This market is still developing and firms and consumers are continuing to adjust to the reforms. The freedom and choice introduced by the pensions freedoms have been popular, but have also required people to make more complicated decisions about retirement than previously.

Defined Contribution (DC) pots are still relatively small for most current retirees and are often not their main source of retirement income. However, with the decline of Defined Benefit (DB) schemes, many consumers will rely increasingly on DC pots as a major source of retirement income over the medium and long term.

Our review focused on those consumers who do not take advice – and our evidence shows that some consumers are at risk of harm. We found that:

• there are weak competitive pressures and low levels of switching - most consumers choose the 'path of least resistance', accepting drawdown from their current pension provider without shopping around
• 1 in 3 consumers who have gone into drawdown recently are unaware of where their money was invested
• some providers were ‘defaulting’ consumers into cash or cash-like assets, but holding cash is highly unlikely to be suited for someone planning to draw down their pot over a longer period
• consumers might pay too much in charges - we found that charges for non-advised consumers vary considerably from 0.4% to 1.6% between providers, and are, on average, higher than in accumulation (where in some cases they are capped at 0.75%)
• drawdown charges can be complex, opaque and hard to compare
• so far we have not seen significant product innovation for mass-market consumers.

Remedies

Our new rules and guidance and our second proposed package of remedies aim to address the harms and emerging issues we have identified, and to put the market on a good footing for the future. They balance the need to protect consumers and improve competition in the market, with allowing the market to further develop and innovate.

We have taken steps to protect customers and help them make better choices – before accessing their pension savings, at the point of making a decision, and throughout their retirement.

Before consumers access their pension savings – better communications, support and guidance

Before consumers access their pension savings, we want to improve the effectiveness of consumer communications and ensure consumers access the support or guidance they need.

We have changed our rules on ‘wake-up packs’ so that they reach consumers at the right time to inform their decision, and are more useful to them.

‘Wake-up’ packs will now:

• incorporate a one-page ‘headline’ document, in clear and accessible language
• be sent earlier in the process, from age 50, and every five years thereafter until the pot is accessed.
• include risk warnings, from age 50 onwards

At the point of entering drawdown or buying an annuity

We are also consulting on the following proposals:

• Providers should offer non-advised consumers ready-made drawdown investment solutions, within a simple choice architecture (‘investment pathways’), which reflect standardised consumer objectives.
• New consumers accessing drawdown will have to make an active choice to be in cash. We also expect firms to have a strategy for dealing with consumers who have already been defaulted into cash, and who are unlikely to be best served by this strategy.
• Providers should tell customers beginning to draw on their pension how much they had actually paid in charges over the previous year, in pounds and pence and inclusive of transaction costs.

We are also working closely with the MoneyHelper (formerly the Money Advice Service (MAS)) and the Association of British Insurers (ABI) to develop a drawdown comparator tool.

Once a consumer has entered drawdown 

Once a consumer has entered drawdown they still need information and support.

We are consulting on:

• a proposal that providers should send information to their customers in drawdown annually, whether or not they are currently drawing an income from their pot
• a proposal on whether firms should remind their customers annually of their chosen investment pathway and their ability to switch

Interim report

This summary provides a brief overview of the key points from the interim report and may be enough detail for some readers:

Retirement Outcomes Review: at a glance (PDF)

For a more in-depth description of our findings and proposed remedies you can read the full interim report:

Retirement Outcomes Review: interim report (PDF)

The interim report included 5 annexes:

• Retirement Outcomes Review: interim report: Annex 1
• Retirement Outcomes Review: interim report: Annex 2
• Retirement Outcomes Review: interim report: Annex 3
• Retirement Outcomes Review: interim report: Annex 4
• Retirement Outcomes Review: interim report: Annex 5
• Retirement Outcomes Review: interim report: Annex 6

See our Retirement Outcomes Review: infographic (PDF)

Terms of reference

We announced our intention to undertake this review in our 2015/16 Business Plan and published the Terms of Reference in July 2016.