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Retirees may regret risky pension decisions

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Written by: Emma Lunn
02/07/2019
Age UK has warned that pension freedoms are letting down many older people with a significant number making decisions without taking advice.

The low take up of advice and guidance provision is failing to meet either the expectations or needs of retirees, according to a research paper commissioned by the charity.

‘Fixing the Freedoms’, written by independent consumer consultant Dominic Lindley, investigates the development of retirement income products, customer support, and industry thinking since the pension freedoms came into effect in 2015.

Lindley interviewed specialists from across the pensions industry and found many feared a scandal over the next few years.

Severe consequences

The paper found that a lack of innovation since the introduction of the pension freedoms four years ago is forcing many older savers into making complex pensions decisions without advice or support, or without appropriate products to choose from.

Age UK warned that the potential for – and consequences of – consumers getting it wrong are huge. It said many older people are unaware of the need to factor in elements such as upcoming tax bills and state benefit rules.

The charity has raised concerns that getting to grips with the new flexibilities is an extremely challenging prospect for the majority of savers who have never previously thought much about their pension.

It is also worried that limited innovation aimed at consumers with small to medium-sized pension pots in particular has left many lacking access to good value and appropriate products, and without the tools to help them manage their money effectively.

The paper points out that empowering consumers to make their own choices was predicted to stimulate innovation and competition in the market. However, this appears to be taking a lot longer, and to be happening to a more limited degree, than the champions of the pension flexibilities had hoped at the outset.

Potential pension scandal

Many of the experts interviewed expressed concern that some sort of scandal related to pension freedoms may well emerge over the next few years – most likely as a result of a market downturn or a sustained period of poor returns.

The paper warned that many older people who have not understood the risks of drawdown or who are holding inappropriate investments because of inadequate advice may suffer losses.

Figures from the Financial Conduct Authority (FCA) show that more than 90,000 consumers run the risk of running out of money in a market downturn unless they cut the amount they are taking out.

Caroline Abrahams, charity director at Age UK, said: “The pension freedoms introduced in 2015 have been really popular to date and there’s no doubt that many are enjoying and benefitting from the greater flexibility they’ve been given. However, we are worried that a lot of older people with small and medium-sized pension pots, who do not pretend to be particularly financially savvy, are making risky decisions that could leave them in a mess in a few years’ time, especially if there’s a downturn in the market as is bound to happen at some point.

“As a minimum, we need to get more people to use the Pension Wise service, which has proven popular but with far too few savers using it. The government and the FCA need to take a far more proactive approach to ensuring that these consumers get a good deal so that if and when a market storm hits, it does not destroy public trust in pensions and the reasonable aspirations of thousands of consumers for a comfortable retirement.”

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