The pensions industry is calling for a review of advice rules after a report found safeguards were needed to ensure the pension freedoms remain sustainable.
A report into the impact of pension freedoms by the Association of British Insurers (ABI), published today (February 25), has called on regulators to reform advice rules now that Brexit has offered the chance to get rid of the restrictions currently in place.
Pension freedom rules, introduced in 2015, mean those aged over 55 no longer have to purchase an annuity to access their pension income but can enter drawdown or take a cash amount instead.
Data published by HM Revenue & Customs last month (January 30) showed in total, almost £33bn has been withdrawn from schemes since the introduction of the freedoms in April 2015.
The ABI warned there was a continued risk savers could deplete their pension pots too early in retirement leaving them financially stranded in later life.
It warned withdrawal rates had reached an annual rate of 8 per cent in 40 per cent of cases when safe levels would be closer to 3.5 per cent.
To avoid this it said the industry should “tackle advice and guidance black holes” so that both providers and advisers are able to offer more support to individuals.
The ABI suggested allowing pension providers to give more help to customers without crossing the boundary to regulated advice.
It argued FCA guidance on the advice-guidance boundary had been "helpful" but could have gone further to allow providers to help their clients with ‘people like you’ case studies, personalised guidance, and forecasting a range of probable outcomes. They would also have a greater ability to convey to consumers that a decision may be detrimental to their desired outcomes.
The body mainly represents providers, many of whom have argued for greater freedom in how they can serve clients in the past.
The report also called for the Department for Work and Pensions to require DB schemes to provide scheme members who wish to transfer their pension to a defined contribution scheme with a letter warning of the risks.
Another suggestion was to get the Money and Pensions Service to develop a later life review to help people plan during their retirement, which would include providing access to guidance, which could become more personalised if current rules were reformed.
Yvonne Braun, director of policy, long-term savings and protection at the ABI, said: “Nearly five years on from their introduction, it is now time to review how the pension freedoms are working. They may have brought about a retirement revolution, but it is too soon to tell how things will turn out.
“This report highlights some warning signs. We urge government and regulators, working with the industry, to act on our recommendations, to deliver the changes needed to improve the outcomes for present and future retirees”.
Will Hale, chief executive officer at Key, said: “The ABI is right to warn about a ‘black hole’ on guidance and advice. Making choices around how and when to access cash in order to finance wants and needs in later life is not easy.