“The new pension freedom rules have put much more responsibility on individuals to use their pensions wisely but clearly that is not happening in far too many cases. This report takes us back 10 years to the bad old days when many people were herded into poor value deals without exercising any active choices. Today that's as likely to be income drawdown plans which have become a mass market product despite the extra risks and costs compared to guaranteed income solutions.
“It was clear from the start the new rules would create a very complex and potentially risky environment which many people would struggle to navigate. With expectations so high and knowledge so low, it’s not a surprise to see scams and poor decisions proliferate. The Government tried to address this by creating guaranteed guidance but, useful as the sessions are, this report again highlights the fact that formal guidance is not achieving the reach required. Our view is that rather than opting in to guidance as at present, it should be provided automatically unless people opt out. What’s needed is a nudge or ideally a shove. That could transform the quality of decision-making at a time in life when it does pay for people to know what they are doing.
“Perhaps of most concern, again reflected in this report, is the fact that many people aren’t shopping around. This is simple stuff but some people appear almost paralysed into inactivity. They think there might be charges without even checking, they think their own provider offers best value without shopping around to find out, and they think they will be rewarded for staying loyal.
“Sadly this report provides more evidence of what, even at this early stage of pension freedoms, are widely recognised problems. The Financial Conduct Authority knows competition is not working well and in the next few weeks we expect more details of proposed improvements which include better comparisons across products to aid shopping around, a rethink of the information given to consumers such as wake-up packs to make them more relevant, and better framing of consumer choices to put the focus on better decision-making rather than to drive sales. Those changes can't come soon enough.”
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