Financing the Future: Mind the Gap!
a report by FSA
Comment by Seniors Network
Interpreting the latest article by the FSA leaves me in no doubt that both
Government and the Financial Services Industry has "dropped the present
day pensioner in the brown stuff".
It is far, far too late for many of us to learn from the country's
mistakes. Our generation worked quite happily and served our country
believing that our Government would take care of us "From the cradle to
the grave".
The report calls "for more resources to be applied
to increasing consumers’ understanding of the risks they face and the
steps that they must take to avoid an impoverished old age".
So there you have it - unless the state pension is increased - most of us
are facing an impoverished old age.
Read Rodney Bickerstaffe's comment
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Press release by FSA:
Financial firms and consumers need to adopt a more pro-active approach to
planning for old age. The ageing population brings major opportunities and
risks for firms, while for consumers the choices they make both during
their working life and at retirement make a big difference to their
financial well being. There are issues here also for government and
regulators.
In
Financing the Future: Mind the Gap! published today, the watchdog
highlights three principal factors that are driving increased risk. The
first is the growing shift in emphasis between state provision and private
pension provision. The second is the move of investment risks from company
pension schemes to individuals. The third is increased life expectancy.
The FSA report questions whether firms are
fully prepared for the risks and opportunities of an ageing population.
The potential risks include the sale of complex products to consumers who
don’t understand them and the mispricing of retirement products. It also
calls for more resources to be applied to increasing consumers’
understanding of the risks they face and the steps that they must take to
avoid an impoverished old age.
Carol Sergeant, Managing Director of
Regulatory Processes and Risk Directorate commented:
"The consequences of an ageing population have not yet been fully
appreciated. There are risks here, but there are also opportunities for
innovative products and services that address the changing needs of
consumers. It will not be enough for the industry simply to continue
offering the products that worked 30 years ago.
"Consumers, too, must understand that they will face greater exposure
to the effects of financial volatility. They have difficult but
important decisions to make. There is a role here for the FSA,
government and the industry itself to get this message across before it
is too late and to help consumers meet the challenges."
Effective action will require the
involvement of all key stakeholders. For its part, the FSA will:
-
Encourage retirement planning and provide consumers with the tools
to plan, particularly younger consumers. We plan to deliver a programme
of consumer education directed to young consumers through to retirees
targeting the right messages at the right consumers at the right time.
For example, we are developing an interactive fact-find which will help
consumers understand their financial planning needs.
-
Raise consumers’ understanding of the risks associated with
increasing exposure to investment risk and inadequate savings levels. As
part of this strategy, we are encouraging the government to look at ways
to help and make it easier for employers to give employees information
on the need for planning and saving for retirement. We are also
encouraging the industry to develop longer-term relationships with
consumers saving for retirement, which should serve consumers better as
their product needs and circumstances change with age.
-
Equip older consumers with the right questions to ask and relevant
information to increase their understanding of the core decumulation
products. We are working alongside the industry and the government to
increase older consumers’ understanding of annuities, income withdrawal
and equity release. In addition, we have now consulted on revisions to
the necessary rules and guidance requiring firms to make consumers more
aware of their options and what they are buying; for example, on their
right to shop around for annuities.
-
Ensure that firms take full account of the implications for
themselves arising from the growth in the market for retirement
products. For example, we will scrutinise the way the financial services
industry manages the increasing burden of longevity risk, focusing
particularly on the pricing of annuity business on their balance sheets.
-
Ensure firms respond appropriately to risks to consumers when
developing and marketing new and innovative products, particularly
annuities and equity release. For example, we will consider the extent
to which longevity risk is being transferred from firms’ balance sheets
to consumers and where there may be increased potential for mis-selling.
More broadly, we plan to carry out themed supervision work to examine
the adequacy of the information disclosed to consumers when selling
decumulation products.
-
Encourage financial advisers to take account of the changing needs
of consumers, particularly their different wealth and debt profiles
across different age groups. We will particularly focus on the advice
process for decumulation products. For example, we plan to review the
adequacy of qualifications and ongoing competency of advisers who sell
retirement products, particularly the more complex products. Finally, we
will also consider more closely the quality of audit controls existing
in firms to ensure a high standard of service is delivered in the sales
process.
Oliver Page, Director of the Major
Financial Groups Division and the FSA Ageing Theme Co-ordinator said:
"The opportunities for the financial services industry
to rise to the challenge of an ageing population are clear. Staying in
touch with the changing needs of customers is plain good business sense.
But the industry also needs to be particularly mindful of the risks they
face in meeting this challenge."
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Financing
the Future: Mind the Gap!
