Since the introduction of pension freedoms by the coalition government, concern has grown over the potential for pension savers to be at risk of scammers or advisors promoting investments that will not meet their needs. Now, the Financial Conduct Authority is consulting on measures to stop up to 100,000 customers a year losing out on income from their pension when they access their pension freedoms.
Christopher Woolard, Executive Director of Strategy and Competition at the FCA, said:
"The Pension freedoms give consumers more flexibility in how and when they can access their pension savings; but that also means they have to make more complicated choices. Our Retirement Outcomes Review identified that many consumers are focused only on taking their tax-free cash and take the 'path of least resistance' when entering drawdown. This can often mean that the rest of their drawn down pension pot is not invested in a way that meets their needs and intentions. We found that around one in three consumers who have gone into drawdown recently are unaware of where their money is being invested. This leads to poor consumer outcomes."
"Our proposals on investment pathways will help non-advised drawdown consumers select from four relatively simple choices, designed to meet their broad retirement objectives so that they can maximise their income in retirement."
The FCA estimates these changes could benefit people by up to £25 million a year and has been warmly welcomed across the industry.
Former pensions minister Sir Steve Webb commented: "These FCA rules are a sensible response to the risk of savers sleepwalking into seeing their hard-earned savings eroded by sitting in low-return cash investments. There is still a problem where people cash out the whole pot and transfer it into a cash ISA or current account."
Rob Yuille, head of retirement policy at the Association of British Insurers (ABI), which represents many pension providers, said: "Increasing information about fees and charges is something the industry has been working on for some time and we support the FCA's proposals."