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Changes on the horizon - FCA consults on non-workplace pensions

22 February 2018. Published by Rachael Healey, Partner

The FCA has issued a discussion paper targeted at the non-workplace pension market. The paper marks the start of the FCA's work looking at whether there is harm in the non-workplace pension market and to better understand the potential presence, nature, extent and cause of any harm.

The FCA estimates that non-workplace pensions collectively represent £400 billion of assets under management.  This is more than double the amount of assets invested in contract based defined contribution workplace pension schemes.  Non-workplace pension schemes include SIPPs, individual personal pensions, stakeholder pensions, free standing additional voluntary contributions, section 32 buyouts and retirement annuities.  1 in 4 adults have accumulated benefits in non-workplace pensions.  The substantive difference between workplace and non-workplace pension schemes is that for workplace pension schemes the employer makes key decisions about the pension product provider; albeit that the consumer can often decide where to invest their funds within the scheme itself.  With non-workplace pensions the decision rests entirely with the consumer.


The paper notes the increase in SIPPs since the introduction of RDR in 2012 and the pension freedoms in 2015.  Research referred to in the paper notes that in 2016 there were more than 14 million individual and stakeholder pension schemes with an average value of £22,000.  This compares to 1.7 million SIPPs with £90,000 being the average amount invested in streamline SIPPs and £240,000 in bespoke SIPPs.  Around 250 firms hold relevant permissions to provide pensions but not all firms are thought to be actively using those permissions.  It is estimated that the 5 largest SIPP operators control 60% of the market and that around half of all SIPP operators have portfolios comprising less than 2,000 SIPP accounts but that many of these operators offer bespoke SIPPs attracting higher-value clients who are fewer in number.


The paper is the start of a review into competition within the non-workplace pensions market and whether or not there is a need to go further to protect consumers.  The FCA will look in particular at the factors that influence the behaviours of consumers and providers and whether the current market dynamics ensure fair outcomes for consumers.  In particular:-


  • If and how consumers know whether they would be better off switching funds, products or providers, and whether this knowledge informs their actions.

  • The extent to which consumers who enter into a non-workplace pension scheme without advice shop around before doing so and what features consumers compare when shopping around.

  • The extent to which an adviser was involved in or influenced consumers' decisions to enter into a non-workplace pension scheme  and why.

  • The operation of the annual management charge together with paid up and exit charges

The FCA notes that they consider it possible that similar weaknesses identified in the market for workplace pensions may exist in the market for non-workplace pensions.  The FCA has previously conducted a review of workplace pensions and the discussion paper looks at the changes that resulted from that review and whether similar issues apply to the non-workplace pension market. However, the more interesting comments in the paper include:-


  • The FCA notes "some emerging issues that cause concern" following the advent of the pension freedoms, including (1) how a competitive market will develop in the future, (2) competition is not working well for consumers who don’t seek advice, (3) consumers who move into drawdown may struggle with the complexity of the decisions they have to make particularly if they have not taken advice.

  • De-facto default funds operate in the non-workplace market due to a lack of engagement, confusion and specific labelling used. For example, if a consumer invests in a lifestyle option they may conclude that they do not need to engage any further and that relevant investment changes will be undertaken by the provider without any input from the consumer.

  • While the FCA "have regard to the general principle that consumers should take responsibility for their own choices and decisions, we know that there are factors that might limit their ability to do so".

  • Although 60% of consumers switching to non-workplace pension products obtain advice at the time of the switch, there is little evidence that consumers continue to obtain advice on their pension investments and this is an area of concern.

It is perhaps unsurprising that the FCA is looking at the non-workplace pension market.  There have been a number of difficult headlines for those within this market, in particular SIPP operators.  The paper acknowledges the impact of the pension freedoms and refers to the difficulties for the pension transfer market in the wake of headlines over the British Steel Pension Scheme.  In light of all of these issues which impact on non-workplace pensions the review was perhaps inevitable.  However, the scope of the review does not look like it will cover issues currently affecting the non-workplace pension market including business referrals from unauthorised introducers and a non-workplace pension providers responsibility (if any) for a consumers investment choice.  We await the consultation paper later this year.