Retirement savers need more support to make the right choices, says FCA

The pension reforms introduced in 2015 mean that savers no longer have to purchase an annuity with their pension savings. Instead, you can choose to access all of your pension savings from the age of 55 or keep part of your pension pot invested in the stock market while drawing down an income from it.

However, many people are making a poor financial decision by taking some of their pension savings in cash, the Financial Conduct Authority (FCA) says. Its Retirement Outcomes Review, an in-depth look at the pensions and retirement income sector, found that some drawdown customers could receive 37% more retirement income every year by investing in a mix of assets rather than cash.

To give savers more guidance about what to do with their pension, the regulator has proposed a package of measures including ‘wake-up´ packs which would be sent to customers from the age of 50 and then every five years until the customer has fully accessed their pension pot. These communications would include a single page summary together with specific warnings to help consumers engage with the risks and choices they face and prompt them to access the support and guidance they need.

The FCA is also inviting views on the introduction of investment pathways for customers at the point of entering drawdown. A more structured set of options may help consumers to engage with the decisions they are making, consider what their retirement objectives are, and ultimately end up with a more appropriate investment solution, the regulator said.

“We know that the choices introduced by the pension freedoms have been popular with many consumers,” commented Christopher Woolard, executive director of strategy and competition at the FCA.

“However, they´re now required to make more complicated decisions than ever before. Many people need more support when making choices.”