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It found since the pension freedoms consumers have withdrawn their pension pots and moved their money into savings and investments elsewhere, and that many savers are moving into drawdown without advice.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