The UK’s Financial Conduct Authority (FCA) is investigating the £400 billion ($558.5 billion) private-pension sector to determine if it is overcomplicated, and if private pensions offer consumers the same protection as workplace pensions.
Individual private pensions, also known as non-workplace pensions, collectively represent approximately £400 billion assets under management, according to FCA estimates, which is more than twice the amount invested in contract-based defined contribution workplace pensions. The FCA also said that research suggests that at least a quarter of adults in the UK have accumulated benefits in non-workplace pensions.
The FCA said it is seeking feedback to better understand the market for non-workplace pensions, including whether competition is working well, and if there are issues that need to be addressed to protect consumers.
“In recent years we, alongside the Department for Work and Pensions and The Pensions Regulator, have taken a number of steps to address weaknesses in the workplace pensions market,” said Christopher Woolard, FCA’s head of strategy and competition. “We believe it is now right to look at the other side of the picture and assess whether competition is working in non-workplace pensions. We want to hear from anyone with an interest in this subject about how they think the market is working.”
The FCA said it is looking to understand how the differences and similarities between the workplace and non-workplace markets impact competition and consumer outcomes. In particular, its areas of focus include:
- Product complexity. The FCA said most pensions are complicated products, and product performance may not become apparent for many years.
- Factors that may reduce consumer motivation and ability to invest time and effort in making pension-related decisions.
- Whether customers can identify and easily move to more competitive products.
- Fund choice and the use of defaults. The FCA is concerned that informal defaults may be operating in the market for non-workplace pensions that are not subject to the same protection as defaults in workplace pensions.
The FCA is asking for feedback to be submitted by April 27. The FCA will consider responses and then collect data to better understand any problems identified.
“We aim to understand whether competition is working well in the market for non-workplace pensions and whether or not there is a need to go further to protect consumers,” said the FCA in its report. “We think it possible that the weaknesses previously identified in the market for workplace pensions may exist, in whole or in part, in the market for non-workplace pensions.”