Pension savers 'cash in, but lose out'
- Published
Savers focused on cashing-in some of their pension pot are "sleepwalking" into poor financial decisions, experts have warned.
The City regulator, the Financial Conduct Authority (FCA), has confirmed plans to make choices clearer to those approaching retirement.
Savers can cash in their pension from the age of 55.
The FCA wants savers to be sent "wake up" information packs from 50 and to be given clearer details on investing.
Some people are concentrating on taking some of their pension in cash and then leaving the rest of their money in inappropriate, low-return investments.
Generally, saving in cash is less lucrative in the long-term than some other forms of investment.
Former pensions minister Steve Webb said that these people were losing out owing to "reckless caution".
The FCA said its proposals could benefit people by up to £25m a year.
Pension overhaul
Changes to the rules governing pension access were introduced in April 2015 by the chancellor at the time, George Osborne.
Previously, people would have bought an annuity - a financial product that provides a guaranteed retirement income - with their pension pot, although this is an option that remains open to them.
Now, savers can choose from a range of options, including taking the whole amount out as a lump sum, paying no tax on the first 25%. Recent figures from HM Revenue and Customs (HMRC) revealed that £23 billion-worth of savings have been accessed so far.
Some choose a so-called drawdown pension, which allows them to withdraw as much money as they like at any one time while the rest remains invested in a pension.
The FCA said an estimated 100,000 customers entered drawdown without taking any kind of financial advice each year.
It is now proposing that firms offer customers who do not take financial advice a range of off-the-shelf products that broadly meet their aims, called "investment pathways".
Other proposals include:
Pension investments are not put into cash savings unless the customer actively chooses this option
Pension providers send "wake-up" packs to their customers at the age of 50, from November this year. This would include a single-page summary in clear language
Clearer information on the actual charges savers have paid on their pension pot over the year, expressed in pounds and pence
Steve Webb, the pensions minister at the time of the reform, who now works for pensions and investments firm Royal London, said: "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."
- Published13 January 2017
- Published16 March 2015
