Baroness Ros Altmann has criticised the pension industry for its lack of innovation, suggesting there needs to be an overhaul in retirement planning products to make pension freedoms better for consumers.
Speaking at Quilter’s Investment Symposium this morning (September 17), former pensions minister Baroness Altmann (pictured) said that although it is a good idea to give people flexibility when accessing their pension pot, in practice pension freedoms have created a lot of challenges for both consumers and advisers.
Under pension freedoms introduced in 2015, individuals over the age of 55 are able to flexibly withdraw funds as they wish from their pension pots, rather than take the default option of buying an annuity.
They may access their pot as a lump sum, buy a product that pays an income, keep it invested or can choose a combination of all three.
But despite these challenges there seems to be little innovation in the pensions market with the industry still relying on the old approach of choosing between an annuity or drawdown.
Baroness Altmann suggested there needs to be new products entering the market in order to help people make their pots last throughout their retirement.
She said: “People need to understand pension freedoms to be able to make the most of them.
“The original idea behind the pension freedom movement was that people would receive guidance and advice before they accessed their pension but the reality is that too many people are going it alone.
“Without an adviser individuals are unaware of the risk of taking too much out of their pot as well as the tax implications which surround this. In practice confused consumers are making poor decisions in the face of complexity.”
She also warned that many people are in the wrong drawdown product which is often too expensive or does not reflect the consumer’s current situation.
She suggested a lifetime pension product where there would be no fixed date when individuals should switch from saving to spending but instead people would invest in higher return assets for a longer period of time.
There was also the suggestion of a new decumulation product where pension withdrawals would last throughout retirement, or splitting a pension pot into four phases with people withdrawing funds at each milestone age, for example at 60, 70, 80 and 90.
Baroness Altmann said: “People need to start seeing their pension as a fund to last through later life and not as money which is available as a lump sum at the beginning of retirement.
“There needs to be innovation in the market but each product needs ongoing monitoring and advice.”
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