Pensions - Articles - Planning to cap a market that does not yet exist

 “We’ve yet to see how customers will want to use drawdown so proposition for this new market including charges are likely to change in the coming months. It could be very damaging to how this market develops for customers if we saw an arbitrary cap imposed before we see how customers use their freedom or how providers innovate to meet their needs.

  

 “For example, one form of drawdown that is likely to prove much more popular is a version including some form of guarantees. These products allow you to keep your pension invested but provide a guaranteed minimum income which continues even if you run out of funds in later life. These valuable options come at a cost which may not fit within an arbitrary charge cap. This new market could be stunted before it even takes off.

  

 “Drawing parallels to the world of workplace pensions where a charge cap of 0.75% will soon be introduced are flawed. This cap is specifically for those who make no decisions about how they wish to invest their pension contributions and are therefore put in the default fund.

  

 “The new pension flexibilities are all about choice and any future government has to be careful to avoid extending the cap to any situation where an individual wishes to make a choice or seek advice – this is absolutely key so that we don’t stop people being able to obtain advice or to exercise personal choice.

  

 “Equally, we believe any consideration of a NEST style default drawdown vehicle is premature. NEST was put in place at the taxpayer’s expense to plug a gap in the market that existing providers could not serve commercially. Before committing further taxpayers money to another such scheme, let’s wait to see how consumers use the new flexibilities and how existing commercial providers respond.

  

 “The FCA will be reviewing how the market develops, including being on the look out for high or opaque charges. It is not in anyone’s interest to impose restrictions on a market in anticipation of speculative future issues.”