The UK pensions industry is in "desperate need" of innovation in accumulation after pension freedoms, both from providers and financial advisers, experts have warned.
Adrian Boulding, director of policy at master trust Now: Pensions, argued the ‘dash for cash’ wasn’t just a consequence of introducing pension freedoms, and even those who are opting for drawdown aren't doing so sustainably.
Figures from the Financial Conduct Authority (FCA) show around 600,000 pension pots are being accessed each year.
Seven in 10 savers accessing pension money for the first time are aged less than 64 and nearly two-thirds of funds accessed are valued at less than £30,000.
Some 85 per cent of funds worth less than £10,000 and 61 per cent of funds worth £10,000 to £30,000 are being taken as full cash withdrawals.
Mr Boulding said: "For those that don't cash it all in one go, the average rate of drawdown is to take 8 per cent of your pot each year.
"You don't need to be an actuary to realise that with the average length of retirement being nearly 25 years, the money simply won’t last that long.
"After 30 years in the pensions industry I now feel we may need to rename our industry to something else, like the 'save till 55 and then cash it all in' industry."
He argued that the UK "desperately needs some innovation in decumulation, to deliver the retirement income products that people will actually want to buy".
He added: "It is a problem that is just a little too early yet for auto enrolment master trusts as our average pots are currently small, but it is one we will definitely need to turn our attention to in the future."
The FCA will be launching its consultation on drawdown investment pathways in January, which will lay out the rules for providers to offer their customers easy to access ready-made drawdown investment products, in a bid to prevent them from sticking their money into cash.
Ian Browne, pensions expert at Quilter, said this is a practical suggestion from the regulator.
He said: "However, while this is a good idea, there should be no doubt in anyone's mind that it will still require a customer's ongoing input and is not a silver bullet."
For Gregg McClymont, director of policy at B&CE, provider of The People's Pension, master trusts "should have an opportunity to deliver to and through retirement solutions by enabling members to undertake scheme drawdown".
He said: "This route leads to institutional pricing (i.e. low) and professional investment management which can deploy the advantages of scale and a cashflow positive funding position.
"We welcome further government and regulator work in this area."
Rachel Vahey, product technical manager at Nucleus, argued that drawdown also brings new challenges for financial advisers.
According to data published by the FCA in September, 69 per cent of pots first entering drawdown are from advised clients.
She said: "The number and range of people choosing drawdown is increasing fast, putting more pressure on advisers and planners to formulate a strategy on how they want to both charge for this business steam and manage the workload, both the initial decision and annual reviews."
maria.espadinha@ft.com
