The government’s failure to introduce default drawdown rules has been branded “odd” and “illogical”.
Andy Tarrant, head of policy and government relations at BC&E, said by insisting on pursuing the “free-for-all” of pension freedoms, the government was ignoring clear behavioural biases.
Speaking at an even hosted by the Trades Union Congress, Mr Tarrant said the majority of people were "making bad decisions”, citing research commissioned by The People’s Pension and State Street Global Advisers, and carried out by Ignition House.
The research revealed people were finding it extremely difficult to know what to do with the new freedoms that came with George Osborne’s freedom and choice reforms, with the most popular choice being inaction, and the second most popular being to cash in.
Mr Tarrant urged the government to introduce a policy that would automatically offer retirees a default drawdown product based on what was best for the majority of retirees.
He said this default product should be “price capped” and have “trust-based governance”. It should also should “flip” to an annuity later in life, to make sure people were protected against longevity.
“If we don’t do these things we won’t be delivering for the DC generation,” he said.
He was not, however, hopeful that this would happen, saying pensions policy had become a “turf war” between the Department for Work and Pensions and HM Treasury.
He said Treasury’s attitude had become “short-term and cynical”, claiming that pension freedoms had seen Treasury raise an additional £1.5bn since inception in April 2015.
Also speaking at the TUC conference was Janette Weir, managing director of Ignition House, the institution that conducted the research.
Ms Weir described as “mammoth” the challenge of helping people figure out what to do with their pension pots, adding: “We really cannott underestimate the size of the task.”
Her research, which covered in depth studies of the behaviour of 80 people, found that 37 were still unsure of what to do with the freedoms nine months after beginning to think about it.
Fifteen, meanwhile, had cashed in their pensions, six had bought an annuity and six had gone into drawdown.
Only one in 10 had used Pension Wise, but of those that had, feedback had been positive.
Of those that consulted a financial adviser, most were surprised by the cost of it, expecting it to cost £100, rather than the true figure of over £1,000.
They also found advisers unwilling to offer them their services, on the grounds that their pots were “too small”.
Ms Weir recommended five solutions: new “rules of thumb” to find their way into common discourse; more “smart drawdown” products, of the sort recommended by Mr Tarrant; an industry-wide unified pensions lexicon; better access to guidance; and cheap alternatives to financial advice, such as robo-advice.
