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The FCA Raises Concerns About ‘Pension Freedoms’

By Andrew Wayland at Everyday Loans.

The way that individuals in the UK are using their retirement savings has become a cause of concern for the FCA; the financial markets regulator has publically raised their concerns over the changes that have occurred since the new rules were introduced in 2015.

The new legislation dubbed, ‘the pension freedoms’ means that savers can access their pensions early, eliminating the need for them to buy annuity with their pension savings.

The Financial Conduct Authority has conducted an interim report, one year into its ‘Retirement Outcomes Review’, and has found five issues that revolve around the way in which advice is issued and the level of competition. A final report will be released in the first six months of 2018.

The report revealed that it is common practice for pension pots to be accessed early, with many choosing to take the savings as a lump sum, rather than have it paid as a regular income. However, it also found that the number of those choosing to move their funds into a ‘drawdown’ fund has increased; these policies enables the individual to be paid a regular income from their pension, rather than using the fund to purchase an annuity.

It was revealed that 53% of pension pots that were accessed had been fully withdrawn, although 90% of them contained an amount below £30,000, and the majority of savers that had fully withdrawn also had other sources of income. 52% of the fully withdrawn schemes had been reinvested elsewhere and the FCA is concerned that savers are missing out on investment growth as well as paying increased levels of tax by using this strategy.

Worryingly, this has been identified that those savers who are choosing to withdraw their pension early, are doing so without seeking expert advice, and are commonly sticking with their current provider for a drawdown scheme rather than researching the competition.

The annuity market has recently seen six of the larger pension providers pull out, including Prudential, Standard Life and LV, reducing the level of competition and leaving product innovation stilted.

The FCA has said that it is going to investigate whether further protections to need to be put in place for those individuals who are choosing drawdown products without being advised, and whether consumers are being charged inflated prices and ending up with investment strategies that are not suited to their needs.

The regulatory body is also going to improve the level of competition in the ‘non-advised’ drawdown market by approaching the government to contemplate proposals that will enable savers to access their pension schemes early, without being forced to make decisions about the remainder of the saving in the pot.

It also states that the public needs access to improved services an tool in order for them to gain a deeper understanding their options after the pension freedoms, as well as improving trust in the schemes.

Christopher Woolard, the FCA’s executive director of strategy and competition stated, “Since the introduction of the pension freedoms, the retirement income market has changed substantially. 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.”

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