The FCA has raised concerns about savers moving into drawdown without advice, but says that it is unlikely to make seeing an IFA compulsory as those with smaller pension pots could be better served by online tools than full face-to-face advice.
The regulator has published interim findings from its retirement outcomes review which found the proportion of savers going into non-advised drawdown has gone from 5 per cent to 30 per cent since the pension freedoms reforms were introduced.
It has suggested a range of measures to tackle the post-pension freedoms market and improve competition for consumers who do not seek advice.
These include additional protections for consumers who buy drawdown without advice; proposals to enable consumers to access some of their savings early without having to move the rest into a drawdown product; and proposals to make it easier to compare and shop around for drawdown products.
Speaking to Money Marketing, FCA director of competition Mary Starks says while managing drawdown is complex the regulator is not considering making advice mandatory.
It has also ruled out introducing a threshold for drawdown advice similar to the advice requirement for safeguarded benefits on pots of £30,000 or more.
Starks says: “One of the issues at the moment is many of the pots we are seeing are very small, so even if we were to introduce a threshold many of them would be below it. We are seeing these very small pots being accessed, but it is not obvious that whatever a consumer is doing with a small pot that it merits the cost of full advice.
“More broadly, full advice is not the only solution to helping consumers navigate complexity. As is consistent with the findings of the Financial Advice Market Review, we remain pretty interested in the development of innovative tools to help consumers navigate complexity, particularly people who don’t have a big enough pot to make it worth paying for full, face-to-face professional advice.”
No “Lamborghini crisis”
In its report, the FCA found take-up of the face-to-face Pension Wise service has been poor, with around 10 per cent of those who accessed their pension between July and September last year having a Pension Wise appointment. The Pension Wise website has been more successful, with over 5 million visits since launch.
Starks says the challenge is in understanding what consumers are using the Pension Wise website for.
On pension freedoms overall, she says the review is focused on ensuring the retirement market works well in the future, not reversing the reforms altogether.
She says: “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 she 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, and that worries us.”