Pensions drawdown is still too complicated to explain to the average consumer, industry spokesmen have claimed.
Rob Yuille, manager for retirement policy at the Association of British Insurers, commented despite much work being done by the ABI in association with its members, more needs to be done to improve the language used by the industry.
He said: “The ABI has been working with stakeholders to make the language used to describe retirement options simpler and consistent in order to help customers understand their retirement options.
“The industry understands that customers who are engaged in their pension are better able to make decisions that suit their individual circumstances so it’s important that we make these options as clear and comparable as possible.”
Guidance services and taking financial advice are vital to ensuring people get the right product to suit their circumstances Rob YuilleAlthough the freedoms which came into force in April 2015 have given people more flexibility and choice, Mr Yuille believes people many customers still do not understand their retirement options.
For example, with flexi-access drawdown (FAD), the ABI earlier this year proposed describing this as ‘flexible income’ and making the tax implications explained clearly upfront.
He added: “It’s also important people understand the different retirement products available, therefore guidance services and taking financial advice are vital to ensuring people get the right product to suit their circumstances.”
Data released by the ABI earlier this month revealed drawdown products have proven more popular than annuities, with £6.1bn invested in new products a year on from the reforms.”
Recent ABI data also shows drawdown is available to a much wider market since April 2015, given the average pot used to buy a drawdown products is now less than for an annuity.
David Trenner, technical director for Intelligent Pensions, commented: “Over a third of people using FAD are doing so without advice. This is dangerous and there is already research which clearly shows peoples don’t understand what FAD is or does.”
He highlighted research from the Pension and Lifetime Savings Association earlier this year, which showed 53 percent of people believed FAD would provide a guaranteed income and nearly 1 in 4 thought there were no risks with FAD.
Mr Trenner added: “I’m not so sure I can think of a better way or term to explain FAD and would simply hope we stick with the same definition so people at least have the chance to get acquainted with it.”
simoney.kyriakou@ft.com
Find out more. Look out next week for FTAdviser’s Guide to Flexi-Access Drawdown, which will qualify for 60 minutes’ worth of structured CPD.
