The Financial Conduct Authority (FCA) has issued a stark warning to pensioners. They claim that savers could be missing out on their retirement income when they choose to access pension freedoms. The FCA monitors the behaviour of financial institutions, ensuring the practice is legal and ethical.
As well as issuing this warning, the regulator proposes a set of measures for pension providers. These measures are aimed at those who offer ready-made investment solutions to customers. This protection is for those customers who do not seek adequate professional advice. This would also prevent pension investments from being defaulted to a cash savings account, unless the individual customer actively opts for this.
The comments from the FCA respond to research on drawdowns. This research revealed a third of customers enter these schemes unaware their money is being invested.
What is a drawdown?
A drawdown is a feature of a pension scheme offered by some providers. This feature allows savers to draw a post-retirement income from the assets held in their pension. Disturbingly, the FCA revealed that most took the path of least resistance when entering a drawdown. In other words, instead of seeking advice and researching the quality of this scheme, consumers were just accepting the offer of an income. The result? Potentially poor investment choices.
How could the FCA changes impact you?
The FCA estimates that people could benefit up to £25 million a year across the retired population. It prevents people from sleepwalking into an investment programme that may cost them hard-earned savings. Pension freedoms may well offer you the chance to show a little reckless disregard for your potential future earnings. However, the changes represent a need for providers to be prompted to offer better information and advice before you make this choice.
The content in this article was correct on 9th March 2019. You should not rely on this article to make important financial decisions. Teachers Financial Planning offers advice on teachers’ pensions. Please use the contact form below to arrange an informal chat with an advisor and see how we can help you.