Financial Conduct Authority  

FCA sticks to guns on pension pathways

The FCA estimates these changes could benefit people by up to £25 million a year.

Steven Cameron, pensions director at Aegon, said while improvements to retiree communications are welcome, there is no substitute for advice.

He said:  "There are real risks that those not seeking advice will invest in a fund which is inappropriate for their retirement objectives.

"Asking customers entering drawdown to pick from one of four statements around their intentions for the next five years and then setting out a broadly suitable ‘investment pathway’ will be of help to some and will reduce the number defaulting into cash.

"But the pension freedoms by their very nature mean individuals have a highly personalised retirement journey."

Mr Cameron said it is crucial customers are not given the false impression that improved communications or simplified investment pathways replace the benefits of advice.

He said: "It is only with professional advice that an individual’s personal circumstances will be fully explored to optimise retirement decisions.

"For many, it will hugely beneficial to seek advice on when to retire, where to invest, how much to withdraw taking into account life expectancy and steps to take to avoid paying extra income tax unnecessarily."

William Burrows, retirement director at Better Retirement,  said: "Non-advised decisions may result in OK outcomes when there are simple product choices such as annuities but non-advised drawdown involves making some complex investment decisions.

"Clearly a default investment pathway is better than nothing at all. In theory this sounds sensible but in practice there are lots of moving parts and a well thought out default can quickly run into trouble if market conditions change."

Mr Burrows said he would prefer the industry to approach the problem of unsuitable drawdown plans by looking to make advice more widely available, especially by exploring ways of reducing advice costs.

He said: "The elephant in the room is the cost of advice. If price equals cost plus value added, the value added by good advice is probably higher than the potential savings by not taking advice."