People really struggle to plan for retirement. According to ONS data over half of the British population does not have a pension. For those that do have a pension the average pension size is far too small to fund comfortable retirement. For those that do have a pension engaging with the subject, particularly if they have multiple pension pots, is a struggle.
According to the Association of British Insurers a startling 2.8 million workplace pension pots worth £26.6bn ($33.74) currently cannot be matched to their legal owner and so are considered “lost” – this problem is becoming more pronounced with the number of pension pots considered lost increasing by 75% over the last four years.
Sub-optimal
Although these “lost” pensions remain accessible, and can easily be traced by their owners (if they remember to do this of course), they may well be delivering sub-optimal investment outcomes and their owners may be incurring unnecessary costs. These lost assets are a problem for the industry as well with pension providers themselves incurring significant costs attempting to “identify, track down, verify and reconnect people with their lost pension savings”.
The Government’s pensions dashboard initiative is intended to address this problem by centralising consumer pension pot information, giving people access to their pension “administrative details, current value and an estimate of income in retirement” helping them make better and more informed choices, to seek out professional advice where necessary and, ultimately, to better plan for their eventual retirement.
Consultation
The FCA will have responsibility for regulating firms providing pensions dashboards to consumers (PDS firms) and is consulting on a new regulatory framework that will apply to them. Under this regulatory framework, any firms that intend to operate a dashboard service will need to obtain FCA permission in order to enter the market. For those firms already authorised by the FCA they will need to comply with the new regulatory framework for their pensions dashboard activities. The consultation include the draft application forms required for authorisation providing some advance practical insight into the workings of the new rules. The FCA’s consultation will run in parallel with a Pensions Dashboards Programme consultation on mandatory design standards for the dashboards.
The FCA’s rules that will apply to PDS firms, along with the Supervision manual (SUP) are:
- Threshold Conditions (COND);
- Disputes Resolution: Complaints (DISP);
- Fees (FEES);
- General Provisions (GEN);
- Principles of Businesses (PRIN);
- Systems and Controls (SYSC).
The SUP rules applying to PDS firms include both regulatory reporting and recordkeeping requirements.
The regulatory reporting includes the submissions of annual reports alongside information on the firm’s details and its Directory of persons. In addition to these reports a new regulatory return form is being added to SUP 16, Annex 53A.
In addition to the regulatory requirements present under SYSC 9, the FCA is proposing “bespoke record-keeping requirements for all PDS firms”. These include:
- A record of the dashboard service customer journey to be retained for six years.
- Activity volumes on the dashboard services including tracking repeat visits.
- Separate records for third-party dashboards where applicable.
Because PDS firms will not hold customer money directly, FSCS cover will not apply to them and the prudential requirements will be limited to allowing for:
- contingencies;
- an orderly market exit;
- redress for direct harm.
Because it introduces an entirely new regulatory framework the consultation document is extensive and detailed (clocking in at 328 pages). The FCA estimates that costs for new entrant firms needing to comply with the new rules will range between £80k ($101.46k) for medium firms and £185k ($234.64) for large firms. Comments on the consultation paper are due on February 16, 2023.
