Personal Finance Society chief executive Keith Richards has called on the government and Financial Conduct Authority to take action to limit the high number of individuals not taking regulated advice before going into drawdown.
In response to the FCA’s latest data on the retirement income market, published this week (September 25), Mr Richards warned it was “deeply concerning” how many people were pulling funds out of their pensions without seeking advice first.
The data showed that between April 2018 and March 2019, 48 per cent of pension plans were accessed without regulated advice or guidance being taken by the holder, while 15 per cent of pots were accessed by people who received Pension Wise guidance.
About 34 per cent of savers did not take advice or guidance when entering drawdown in the period - up from previous periods. For instance, in 2017/18 it was 31 per cent.
Mr Richards called on the FCA, along with government, to publish clearer guidance and to do more to ensure pension providers are signposting advice services to their clients.
Mr Richards said: “It should be logical to most that choosing the wrong retirement income option could significantly reduce the income you receive for the rest of your life but from the alarming evidence gathered by the FCA, that doesn’t appear to be the case.
“It is deeply concerning how many people are pulling all their cash from their pension pots without advice or guidance and the potentially catastrophic poor outcome for thousands of consumers must be acknowledged as a failing of government and regulator to deliver clear guidance for the public.”
The FCA declined to comment.
The FCA itself said it was concerned about the level of non-advised drawdown sales as this was a complicated area to navigate, with people at risk of taking too much from their pension pot too early.
Mr Richards said: “The FCA is right to be concerned about non-advised drawdown sales because of the risks of managing drawdown, but what was expected when the public message was ‘it is your money, you are free to do what you what without restriction’?”
He added: “The Personal Finance Society would like to see the government and the FCA do more to make sure providers are signposting guidance services and advice and explaining the potential ramifications if you don’t seek assistance.
“We are also calling on the government to better position the purpose of pension freedoms and the importance of maximising income in what is likely to be a longer period of retirement compared to our parents.
“We need to ensure people don’t see pension freedoms as an opportunity to buy a Lamborghini. We want to make sure that nobody ends up making the wrong retirement income choice.”
Tim Morris, independent financial adviser at Russell &Co also agreed that the FCA needs to do more to make people aware of the value of advice.
Mr Morris said: “It is massively important the FCA does more. People drawing their pension must be fully aware of the implications. This includes highlighting potential tax implications and the risk of running out of money otherwise many will end up relying solely on the state pension."