It is concerned about the risks consumers are taking by buying a drawdown product.
Drawdown investments can go up or down, the income is not guaranteed and it is possible people could run out of money, or the market could become volatile and they lose money.
“So, the FCA is really worried about whether people understand about the investment performance risk that they are taking,” Mr Lowe adds.
“The FCA is desperately trying to make sure people get the help or support they need to understand they are not taking excessive risk.
“Since the pension freedoms, a lot of people have started to access that tax-free cash at an earlier age than before.”
This is why the FCA’s final report on the retirement outcome market, expected by June, could introduce some big changes.
One remedy from the regulator could be that people are defaulted into the independent impartial guidance service as they approach 55 years, so that the difference between annuities and drawdown is clearly explained to them in good time.
While the market waits to hear what the FCA will say, it’s clear the market is not standing still.
Hybrid options
Since the proliferation of drawdown products in the market a number of hybrid options have also made their way onto providers’ product suites.
These are product offerings which offer a combination of some guaranteed income and drawdown.
But the complex nature of this type of product being offered by providers has restricted the number in the market to a few.
Ms Tait says: “HMRC are desperate for providers to come out with more third way hybrid products, but the issue is if you are trying to marry up security and flexibility in one product, it becomes something that is more complicated and something that is more expensive.
“It is possible to deliver the same result by using a combination of the two separate products and for most people that is probably more cost effective at this time. Until someone finds a way of making the package product more cost effective I am not sure whether there’s really much incentive to go down that route.”
So it has been left mainly to advisers to devise ways in which they can help customers access the best of both, if that is what they want.
But experts say innovation within both annuities and drawdown is not yet going in the right direction to make this job less complex.
According to Mr Selby, innovation should be more about simplifying the language and driving down costs.
He adds: “There has been some veiled criticism from the FCA about a lack of innovation in the retirement income market. The main reason for this is that most people have been running to stand still to keep up with the changing pace of regulation and it is the case that most providers are trying to make sure they are compliant.
