Platform providers have failed to solve the "retirement puzzle" facing pensioners who are able to flexibly draw down savings but are held back by a lack of innovation.
Back in April 2015, pension freedoms legislation came into force allowing savers to access their defined contribution pension from the age of 55 and use the funds for a wider range of options, including cash withdrawal, retirement income products or a combination of the two.
Despite these changes, some think the platform industry has done little to adapt and help savers feel the real benefits of the pension freedoms.
As an industry, we still haven't got it together to offer robust, yet flexible, solutions.Verona Kenny, 7IM"We all know that the introduction of pension freedoms in 2015 dramatically changed retirement planning forever, offering retirees unprecedented flexibility with what they could do with their pension pots," said managing director at 7IM Intermediary, Verona Kenny.
"But while this freedom gave people more control than ever over how they use and enjoy their pension, it also resulted in retirement becoming a complicated puzzle littered with potential pitfalls. Chief amongst which is the danger of clients’ pension savings not lasting the distance.
"Yet despite the pension freedoms being introduced a scarcely believable seven years ago, the brutal truth is that as an industry we haven’t innovated nearly enough to help solve this puzzle."
While Kenny reckons the adviser industry, platforms in particular, remain brilliant in helping and facilitating clients accumulate wealth for retirement, when clients tip over into decumulation, providers "really need to do better" to ensure clients do not fall into the pitfalls created by the pension freedoms.
The Financial Conduct Authority recently signalled it is "increasingly turning" its focus to retirement income strategies following its work on defined benefit pension transfers in recent years.
The FCA’s department head for advisers, wealth and pensions, Nick McGruer, previously said his team was currently in the "evidence gathering stage” due to concerns over the size of the retirement income market and those consumers with less wealth or drawing down large sums for the first time.
McGruer added that the FCA was not seeing “particular harms across the market in this space”, but because of the size of the market, the amount of money, and the decision making process, it was something the regulator is keen to understand more about.
Around 596,080 pension plans were accessed for the first time last year, according to the FCA's latest data.
With a lack of innovation and change around retirement offerings, Kenny said it is a small wonder nearly one in three (32 per cent) retirees have regrets about their retirement choices and would change some of their decisions.
Kenny referenced 7IM's own research, which also found:
- 30 per cent would ensure they have greater guarantees on their income;
- 20 per cent would take less from their savings in cash upfront;
- 20 per cent would look for a tax-efficient approach; and
- 19 per cent would opt for greater flexibility.
The number of those surveyed who would make different choices if they had a 'do-over' was the same for both advised and non-advised retirees, Kenny said.
"This only goes to further support that as an industry, we still haven't got it together to offer robust, yet flexible, solutions that deliver the right outcomes for advisers and their clients," said Kenny.
"In addition, our research highlighted that the number of those expressing regret at the decisions made increases as the age of retirees decreases.
"This potentially indicates that the needs and expectations are changing more rapidly than many may assume, especially for younger retirees."
Kenny said the industry would agree that when it comes to retirement, nobody should have regrets, especially when many do not have the luxury of a 'do-over'.
"So, if, as an industry, we fail to bring about the change people want and need, how many of the next generation of retirees will end up having regrets?" said the 7IM boss.
"We therefore need to get it together as an industry, and we need to do it soon (clients have already had to wait over seven years), to really deliver clients the flexible income solutions they need in retirement.
"And I don’t mean one provider delivering one hot new product, but as an industry delivering together to solve the retirement puzzle for all our clients. That’s what we at 7IM will be campaigning for throughout 2023 – and beyond."
ruby.hinchliffe@ft.com
