Steven Cameron, Pensions Director at Aegon said: “The FCA was right to allow pension freedoms, now three years old, to bed in before making decisions around where further remedies are required and to highlight the market will continue to evolve. They have rightly identified ‘non-advised’ customers as most in need of additional support, which is a ringing endorsement of the benefits of at retirement advice. Those who go it alone run the risk of failing to understand their options as they approach and enter retirement, may pick a product with less competitive charges or may invest inappropriately, for example in cash when long term growth is required. Without advice many also struggle to take an income that allows for their life expectancy.
Investment pathways
“Last week, the Government sensibly rejected calls for ‘default decumulation pathways’ which would have defaulted individuals into a product, investment fund and income level, conflicting sharply with pension freedoms principles. The FCA’s narrower focus on discouraging longer term investment in cash and offering a range of structured investment pathways linked to high-level retirement objectives, is more proportionate but not without its challenges. By their very nature, the pension freedoms mean people are accessing their pension savings in a wide variety of ways. Individuals shouldn’t be lulled into thinking picking from three broad categories of retirement intentions remove the need for them to engage further on investment choices.”
Clearer communications
“Clear and timely provider communication is critical, particularly for those without an adviser. We fully support ‘wake-up packs’ with summary one-page documents being issued periodically from age 50 to highlight risks and options and support decision making before, at, and throughout retirement. These should highlight the benefits of seeking advice and guidance and of shopping around.
One year charge figure
“It will be important to ensure the one year charge figure is a meaningful indication of longer term charges and to present it carefully so individuals interpret it in context.
Decoupling
“The concept of ‘decoupling’ tax free cash from transferring into drawdown was always going to be challenging within tax rules and would have required complex administration and ongoing record keeping. Making it ‘too easy’ to take tax free cash early could also have encouraged more people to take this earlier than needed, leaving less funds to cover retirement.”
Commenting on the report, Steve Webb, Director of Policy at Royal London said: “This is a welcome package of measures from the FCA. The report shows that consumers who do not take financial advice are at risk of losing out, with 94% not shopping around at retirement. The biggest risk is not consumers running down their pension pot too quickly – for which the FCA says ‘it has not seen much evidence’ – but savers locking their money into low-return cash investments for decades. Making sure savers do not sleepwalk into cash investments is an important step, as well as simplifying choices for savers at retirement.
“We also welcome the move to contact savers earlier before retirement about their options. Royal London recently starting sending ‘wake-up’ packs to savers five years ahead of retirement, and the FCA recommendations will build on this direction of travel.
“These recommendations are a proportionate and balanced package which preserve the spirit of pension freedoms whilst trying to make those freedoms work better, especially for customers who do not take financial advice’
Chris Knight, CEO, Legal & General Retail Retirement comments: “Pensions Freedoms was a game changer for retirement planning, but these findings from the FCA raise the question of whether we’re all prepared to make hard choices about how we access our pension pots.
“A growing number of people are reaching later life without taking advice or even guidance to help them make informed decisions, and many are continuing to take what the FCA describes as the ‘path of least resistance’.
“Engagement is key. We all need to do more to communicate earlier and more clearly to those approaching retirement. For Government, that means delivering on the Pensions Dashboard. For industry, it means working together to support the advice market and encouraging individuals to plan for retirement earlier, whether through a Mid-Life MoT or with clear guidance to help them better understand their options.”
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