An aging population and a lack of money in the pot mean there could be tough times ahead for the next generation of pensioners. Can the FCA do anything about it?
“The financial services sector is constantly changing in line with the society it serves. Part of our role is being alive to these changes and responding to them swiftly.” So said FCA strategy and competition executive director strategy Christopher Woolard in a recent speech to the pensions policy institute.
He was there outlining how the FCA intends to ensure the next generation of pensions consumers will be protected. Later in the year the FCA will publish a paper on the intergenerational pensions issues it sees, how the financial services sector can respond to it and what barriers lie in the way.
According to Wollard, this will include a package of improvements to improve engagement, promote competition and protect customers, such as ‘wake up’ packs which will include a one-page piece of information which the regulator believes will improve engagement.
The missing pensions generation
The pensions sector faces an urgent and immediate crisis of engagement. Research published last year found that 15 million people could be approaching old age with no pension. A third of all workers, the study found, are not saving towards their retirement.
As Andrew Bailey, Head of the FCA, pointed out part of the problem was a gap between the expectations of the young generation and the realities. He pointed out that only 7% of working adults expect to live until there are 90. However, the FCA’s research found that as many as half of them could be living well into their nineties.
This could leave people with decades of retirement to fund. Unless action is taken now, people could be working late into their 80s and 90s to fund their old age. The question is how can they avoid that prospect?
In his speech Wollard acknowledged the challenges of demographic shifts. If people are failing to save for retirement, it is because they are struggling to pay for the here and now. Since 1980, house prices have risen by 7% while pay has remained stagnant. There is also a lack of trust in pensions. People have witnessed the collapse of final salary pensions, mis selling scandals and much more.
They’ve seen people enter into the great social contract of saving for their retirement only to be let down, so it begs the question: why should they enter into the same deal?
There are challenges at the other end of the scale, as growing life expectancy is contributing to a crisis in funding social care for older people. For once, when older people say ‘it wasn’t like that in our day’ they have a point. Life was much easier for everyone.
A targeted response
So, what can the FCA do? For those younger people who are saving, Wollard suggested it was the FCA’s duty to ensure everyone got the maximum value from those savings. For those who are using credit, the regulator will seek to reduce their chances of coming to harm through credit terms.
Most of all, he called for the regulator to employ imagination and avoid blunt instruments when a more flexible approach would do the trick. Its remit is broad and its resources finite which means it will have to be targeted in its interventions and that means focusing on marking markets well at all stages.
They need to help people when they are saving, to engage them and make sure they are aware of their options, to ensure products offer good value for money and that savings are invested appropriately.
These are the areas he suggests the FCA intends to focus on and we’ll get some more flesh on the bones later in the year when their report is published.