Pension FreedomApr 6 2018

Industry wishlist for pension freedoms on 3rd birthday

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Industry wishlist for pension freedoms on 3rd birthday

With pension freedoms reaching its third anniversary, several pension specialists have suggested changes to make the rules safer for consumers.

Introduced on 6 April 2015, the new legislation revolutionised the way savers accessed their pension pots, dismissing the need to buy an annuity and allowing the access to drawdown after reaching 55 years of age.

According to the rules, defined benefit transfers of more than £30,000 have to be signed off by a financial adviser.

Kay Ingram, director of public policy at national advice firm LEBC, said access to pension freedoms without regulated advice should lead to a default referral to the single financial guidance body, which the government will launch in the autumn.

She said: "This would help consumers be more informed about, taxation, income sustainability and other alternative options."

The new single body will bring together the functions of the Money Advice Service, The Pensions Advisory Service and Pension Wise.

Ms Ingram also said those accessing pension freedoms without regulated advice should have a 30-day cooling off period, which would give a period of reflection where access might be sought due to short term needs.

She also said providers facilitating drawdown or annuity purchase with consumers who have built up their fund with them should provide real-time comparative figures from the market to encourage more shopping around.

Philip Brown, head of policy at LV, said to make the most of pension freedoms, consumers needed to be equipped to make the right decisions.

He said: "That means making sure they have sufficient knowledge of the implications of their decisions."

This is why LV wants providers to only offer information to customers and the distinctions between regulated financial advice, impartial government-backed guidance, and information to be explained so consumers are clear on the differences.

The Financial Conduct Authority (FCA) review into the non-advised drawdown market, published last month, found some consumers were still not fully engaged with the process of accessing their pension pots.

These individuals are making decisions without considering all the options and so "putting themselves at risk of harm," the FCA said.

Fiona Tait, technical director at Intelligent Pensions, agreed there needed to be "continued improvements in communications and signposting to advice and guidance, from the government as well as the industry".

She said there needed to be a "continued development of independent free guidance services for those who do not want or who cannot afford to pay for advice".

Sir Steve Webb, director of policy at Royal London and former pensions minister, said an important part of the guidance process should be to nudge people to "understand that long-term investing in cash is not necessarily safe," which has been one of the main options for non-advised consumers.

He said: "One idea would be to de-couple the taking of the 25 per cent tax-free cash from the need to take the rest out of your pension, as this seems to be causing the problem. 

"If the tax-free cash could be taken and the rest left to go on being invested within a pensions wrapper, this could well lead to better outcomes."

Claire Trott, head of pensions strategy at consultancy Technical Connection, said savers should have the option to choose a half-way house such as capped drawdown, which would give them "some of the access that they want, but with a built-in framework to try and help prevent the funds running out".

Her idea was that this wouldn’t be compulsory, but could still be an option for those that want it.

Ms Trott also believed making pensions simpler would make it safer for consumers, since people "get in mess more often than not because they don’t understand" the rules and concepts.

She said: "This could be because they want to take the funds out and put them in an account that they do understand, which means paying too much tax and removing the funds from a tax privileged environment."

maria.espadinha@ft.com