The interim results of the first major study into the impact of pension freedoms were released by the Financial Conduct Authority yesterday (12/07/17).
Launched in 2016, the main aim of the Retirement Outcomes Review is to analyse how the retirement income market has developed since the pension freedoms were introduced.
One of the key findings from the report was the frequency of pension pot access, with just under three-quarters (72%) having been accessed by consumers under 65. Instead of a regular income, many are choosing to withdraw a lump sum.
Whilst the report also indicated that over half (53%) of accessed pots have been fully withdrawn, 90% of these are worth below £30,000 in total. Of those choosing to make full withdrawals, 94% had other sources of retirement income.
Since the introduction, drawdown has grown in popularity, with twice as many pots choosing this over an annual sum.
As well as trends, key issues were highlighted in the report, potentially indicating a need for intervention.
Of the fully withdrawn pots, just over half (52%) were simply moved into other savings or investments. Whilst this is potentially due to a lack of public trust in pensions, it can lead to a rise In tax for consumers, as well as a sacrifice of other benefits.
The report also revealed that consumers were reluctant to take advice, especially when accessing drawdown. Given the complex nature of drawdown, it may be considered surprising that 30% was bought without taking advice – a rise of 25% since before the pension freedoms were launched.
In addition, the report also highlighted a lack of product innovation, particularly in regard to the mass market.
Commenting on the interim results of the report was Christopher Woolard. The Executive Director of Strategy and Competition at the FCA stated: “Since the introduction of the pension freedoms, the retirement income market has changed substantially. This study looks at what has happened during this time, and gives us an early view of areas to keep a close eye on.
“We have identified areas where early intervention may be needed either now or further down the track to put the market on the best footing for the future. Ensuring this market works well will require cooperation across Government, regulators, the industry and consumer bodies.
“We will work closely with stakeholders to make sure we are clear on the actions we are best placed to lead.”
Having identified the emerging issues, the FCA have suggested a variety of possible measures to tackle them. These are as follows:
- Gathering further evidence on consumer outcomes to assess whether additional protections should be put in place for consumers who buy drawdown without advice. We will gather evidence on whether consumers pay high charges and have ended up with unsuitable investment strategies.
- Improving competition in non-advised drawdown by:
- asking Government to consider proposals to enable consumers to access their savings early without having to make a decision about the remainder of their pot.
- proposals to make it easier to compare and shop around for drawdown
- Tools and services to help consumers understand their options after the pension freedoms and improve trust in pensions, primarily by building on existing initiatives such as the free guidance provided by Pension Wise.
The FCA aims to publish the final report in 2018.
