Pension freedoms delivered greater choice for the nation’s savers in how they could opt to use their cash to fund retirement.
Rather than inspiring the vast majority of the nation to increase their knowledge of retirement income options, pension freedoms has created a growing number of people unable to afford advice from those who could assist them to achieve their retirement dreams.
It has created a growing number of people who are overwhelmed by what they now have to navigate when it comes to looking at their pension pots and figuring out how to make it last a lifetime.
It is deeply concerning that the FCA’s research, published yesterday (28 June) shows that so many people are totally clueless about how their retirement savings pot is being invested.
What is clear from the FCA’s research is retirees cannot rely on cash to protect them against the potentially damaging impact of inflation.Investors going into income drawdown face a wide range of investment risks which differ significantly from those they face when they are building up their pension pot during the accumulation stage.
In accumulation, Quilter’s multi-asset head of investments Anthony Gillham, notes “the usual ups and downs in the market present opportunities to ‘buy the dip’ to build up positions in assets you like.
“In total contrast a more volatile portfolio can be rapidly depleted where investors are taking retirement income during a downturn in the market. This is because the benefits of pound cost averaging are experienced in reverse during drawdown, with ‘pound cost ravaging’ eating away at pension pots on the downside.”
Around a third of non-advised customers were found by the FCA to be in cash or near-cash assets, which won’t provide the long-term growth required to preserve spending power throughout an individual’s retirement lifecycle.
What is clear from the FCA’s research is retirees cannot rely on cash to protect them against the potentially damaging impact of inflation, or their own investment knowledge to maximise their pots to ensure they last well into later life.
The FCA’s latest research makes it clear what is needed is financial advice for all of those facing the uncertainty about what they should do with their pension pots.
This week the FCA also confirmed how it plans to review the effectiveness of the recommendations made as part of the Financial Advice Market Review, which was tasked with tackling the financial advice gap.
The FCA shouldn’t waste its money on a review – anyone with functioning eyes can see the Financial Advice Market Review’s robo-advice agenda push has failed to bring fresh human blood to this market.
What was needed from the Financial Advice Market Review to attract fresh blood to this industry was regulatory reform that means advisers don’t have to fear more than two mistakes on pension transfers could send them bust.
emma.hughes@ft.com
