FCA acknowledges no evidence of savers “squandering” their retirement savings
Regulator right to focus on shopping around but must recognise difference between drawdown and annuities
Fundamental overhaul of retirement communications now needed to boost engagement
Tom Selby, senior analyst at AJ Bell, comments:
“While the general public and the Government have clearly embraced the concept of freedom and choice in pensions, it seems the regulator is not as comfortable. The FCA’s findings suggest the vast majority of savers are using the pension freedoms sensibly and the market is working well for consumers. It is therefore puzzling to see the regulator float a series of market interventions, including ‘default’ funds for drawdown and charge caps.
“The retirement income market has changed beyond all recognition over the past two years but the FCA is having to play catch up. While it is right to place focus on savers shopping around the retirement income market, the review fails to acknowledge the fundamental difference between annuities and drawdown. Indeed, it even refers to people ‘buying’ drawdown, when for most people entering drawdown is a relatively seamless continuation of pension saving.
“If someone fails to shop around for an annuity and buys with their existing provider, there is no going back. The same is not true for drawdown, where customers can switch easily at any time. Savers should be reviewing their retirement strategy and platform provider regularly, rather than just at the point they enter drawdown.
“Allowing savers to access their tax-free cash without forcing them to pick a retirement income path seems sensible given that large numbers of people only want to get at this money initially. It would be particularly useful for members of schemes that do not currently offer drawdown and should reduce the risk of people rushing into a decision without considering the consequences.
“It is also positive to see the FCA beginning to shift its focus to engaging customers rather than bombarding them with information. At the moment providers and advisers are required to send reams of often horrifically complex documentation to savers which many will never read or understand. We need to review and radically simplify the communications that are sent to people, and consider new ways of presenting information that help savers make informed retirement decisions.”