The UK’s Financial Conduct Authority has flagged concerns about the way in which people are using their pensions since the introduction of landmark rules around retirement savings in 2015.
The FCA on Wednesday said that it had identified several issues, particularly relating to advice and competition. A more extensive report is due next year.
Under rules introduced in 2015, savers are able to access their retirement savings without having to buy an annuity, or income for life. The FCA said that accessing pension pots had become “the new norm” and that the majority of people are now choosing to take their pensions as a lump sum rather than gradually as regular income.
Over half of pots accessed have been fully withdrawn, according to the FCA, however most of those are “small” with 90 per cent below £30,000. It said that 94 per cent of consumers making full withdrawals had other sources of retirement income in addition to the state pension.
The FCA said that, “although it is still early days for the market”, it had identified five key concerns since the change came into effect.
One of their worries relates to over half of fully withdrawn pots not being spent but instead being moved into other savings or investments.
“Some of this is due to a lack of public trust in pensions,” The FCA said. “This can result in consumers paying too much tax, missing out on investment growth or losing out on other benefits.”
It also said that consumers who access their pots early are frequently doing so without taking advice and “that they are accepting drawdown from their current pension provider without shopping around”.
It said that providers are continuing to withdraw from the open annuity market, which could bring a risk of weakened competition over time, and that product innovation has been limited to date, particularly for the mass market.
“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,” said Christopher Woolard, executive director of strategy and competition at the FCA.
“Ensuring this market works well will require cooperation across Government, regulators, the industry and consumer bodies.
“We will work closely with stakeholders to make sure we are clear on the actions we are best placed to lead.”
The FCA said that as a result of its concerns it would be gathering further evidence to assess whether additional protections should be put in place. It also said that it aims to provide “tools and services to help consumers understand their options after the pension freedoms and [to] improve trust in pensions”.
