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FCA: ‘This is not an indictment of pension freedoms’

FCA director of competition says she is concerned about the level of mistrust consumers have about pensions but defends reforms to Money Marketing

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The FCA says it is not trying to unravel pension freedoms despite identifying a number of market issues since the reforms were introduced.

Earlier today the regulator published its interim findings from its retirement outcomes review.

It found since the pension freedoms consumers have withdrawn their pension pots and moved their money into savings and investments elsewhere, and that many savers are moving into drawdown without advice.

The regulator also raised concerns about a lack of competition in the annuity market and limited product innovation.

It has suggested savers should be offered default investment strategies for non-advised drawdown, subject to a charge cap. It has also proposed breaking the link between tax-free cash and the pension pot which currently means some savers have to move into drawdown to access their savings.

FCA sets out problems of post-pension freedoms market

Speaking to Money Marketing, FCA director of competition Mary Starks says the proposals are focused on ensuring the retirement market works well in the future, not reversing the reforms.

She says: “This is about the FCA trying to stay close to the market as it evolves, and spotting any future issues early. The fact we have seen such significant changes in behaviour since the freedoms show consumers really welcome the reforms and are making use of them. If they wanted to carry on buying annuities they could have done, and they haven’t.

“This is absolutely not an indictment of pension freedoms. This is about what we need to do as the market evolves to make sure the freedoms work well and put the market on a strong footing for the future.”

FCA eyes breaking link between tax-free cash and pension

Starks says the FCA has not tasked itself with finding out whether the reforms have been a success or failure, or “marking the homework” of pension freedoms.

She welcomes the fact the reforms have not resulted in a “Lamborghini crisis”, with savers cashing out their pensions to fund a jetset lifestyle.

But Starks says: “People aren’t taking their cash out of their pension pots and blowing it, but a lot of people are taking their cash out of their pots and saving or investing it elsewhere.

“We don’t think it’s a good sign when people are saying they don’t trust pensions or they don’t believe in them. That mistrust element is not a healthy thing in a market. That worries us, as it suggests particularly when there are bigger amounts of money at stake people might be moving their money prematurely, they might be missing out on employer contributions, they might be paying more tax than they need to, or missing out on investment growth through a cash Isa.”

She adds: “There are a series of consequences that come from taking money out of pensions because consumers don’t trust them that worries us.”

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. Pension freedoms was a political decision, I do not see how the FCA have any powers to influence Government, who will see the tax take as a success.

    It has proved to be the right thing to do for some, and the wrong thing to do for others, but people are people and make decisions for different reasons, all that can be done is to set out all the pros and cons and hope that they arrive at the right answer for them.

  2. Oh dear, pensions are a means of having a comfortable retirement and is a long term strategy which politicians and evidently regulators just don’t have, hence IMRO,PIA, FSA etc

    A car or a holiday is a moment in time, what about when you get back from the hol or park up the car with no petrol?

  3. Robert Milligan 12th July 2017 at 2:33 pm

    Pension Freedoms has been a transformation by the Government showing common sense, compulsory annuity’s were an Industry abuse, Now giving the client the ability to decide, With or Without Advice what is best for them, makes funding a pension justifiable, until now that is, the younger generation must be encouraged to Invest long term in both ISA’s & LISA’s and hopefully the Pension Regime will disappear over time.

  4. Robert Milligan 12th July 2017 at 2:37 pm

    O and please do not bring up the Employers contribution, Auto Enrolment is the Industry Scandal already being set up to fail, ask any one what Nest is ask any one what their charges are, (and for) Ask anyone what the Fund is and Hey you will be looked at with a completely blank face, Even the Employer has no idea!!!

  5. ‘This is not an indictment of pension freedoms’

    Well it jolly well should be.

    Who are the beneficiaries of this?

    HMRC
    Fund Managers
    Platforms
    Advisers

    All the client gets is the ability to get poorer. Just wait until there is a drop in the market.

  6. Over 90% of pots fully encashed below £30k, and 94% of those who have fully encashed a pot have other pension funds and sources of income. Does not appear to be the complete car crash many doomsayers want it to be.
    I would not argue against someone with a small pot in an old legacy contract with a limited range of poorly performing expensive funds cashing it in and investing elsewhere either, and know a number of clients who have done so.

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