Henry Tapper, founder of auto-enrolment service Pensions PlayPen and director at pensions consultancy First Actuarial, said there should be a new type of vehicle to receive transfers.
Speaking to FTAdviser, he said it should still do the type of things drawdown does, such as giving access to cash in an emergency, along with a regular income, but is also cheap for people to run.
He said that this is needed because currently there are too many layers of intermediation between people and their money and not enough transparency about what’s going on.
“Even with simplified drawdown, there are still impossible decisions to be taken, like setting the rate of drawdown so the money doesn’t run out before you do.”
Mr Tapper said that systems need to be built now before it gets worse. “It will be hard to get done - the regulation is likely to take years and the products even longer but we have to start now - so that as more and more people take pension freedom, the problem doesn’t get worse and worse.”
In terms of cost range, he said the cost of decumulating or spending pension pots should be equivalent to the cost of accumulating or saving, pointing out that the cost cap is currently set at 0.75 per cent.
Mr Tapper said that this new form of drawdown would be cheaper than the present range, providing some kind of “collective protection” against people living too long.
“In the old days when insurance companies first set up, they ran with-profits policies where everyone was in the policy itself, the mutuality of all those people created the insurance, so those people who lived very much longer than everyone else were insured by the fund itself.
“We actually see that as an alternative to an insurance company guaranteeing something. We see a return to a world of mutual insurance down the line, collective insurance.”
He added that First Actuarial sees the long-term solution for transfers in having a safe harbour product into which people can transfer.
Phil Young, managing director at compliance firm Three Sixty Services, said that his firm has been doing quite a bit of work on issues facing advisers and consumers, prompted by the pension freedoms.
He said that in some respects, what’s already available is fit for purpose. “However, there is a demand for a low cost, safer version of drawdown with greater collective protection built into it.”
He added that people want the flexibility of not being in an annuity, with the protection afforded by buying an annuity.
“Hargreaves Lansdown did research into this and quite a lot of people were taking money out and not knowing what to do with it, just putting the money into a cash account.
“We need to acknowledge that is a behaviour that is happening and that it needs to be mitigated. Advisers aren’t necessarily seeing that behaviour with their own clients.”
ruth.gillbe@ft.com
