Since Pensions Freedoms were introduced in 2015, some £23bn has been accessed by savers from the age of 55 – some putting their funds other forms of investment, others taking out up to 25% of their pot in cash, tax free.
The new freedoms introduced by George Osborne cut the shackles to annuities – which offer a safe and guaranteed (if unexciting) return. And while it has enabled many to make positive changes, concerns have always remained that some savers are rushing into making poor decisions which could seriously affect their ability to fund their future retirement.
Now the Financial Conduct Authority (FCA), has confirmed plans to make the choices available clearer to those approaching retirement – including savers being sent “wake up” information packs from the age of 50 which spell out the choices and their long-term impact.
It claims its proposals – which are currently being consulted upon – could benefit up to 100,000 people a year, while former pensions minister Steve Webb, now with Royal London, says that some people are losing out owing to “reckless caution”.
“The big outstanding challenge around pension freedoms is not people with large pots blowing the lot on a sports car but is about more inexperienced investors with smaller pots leaving them invested in cash for long periods of time or withdrawing them altogether.
“There is still a problem where people cash out the whole pot and transfer it into a cash ISA or current account.
“These FCA rules are a sensible response to the risk of savers sleepwalking into seeing their hard-earned savings eroded by sitting in low-return cash investments.”
What will the changes look like?
According to the FCA, an estimated 100,000 customers each year are making decisions without taking any kind of financial advice.
- It wants providers to offer those customers who do not take financial advice a range of four off-the-shelf products designed to broadly suit their objectives.
- Pension providers will send “wake-up” packs to their customers at the age of 50. This would include a clearly written, single-page summary of their options.
- There will be more transparent information on the actual charges savers have paid on their pension pot over each year.
- Pension investments should not be put into cash savings unless the customer actively chooses this option.
You can also find out how long your pensions and savings will last – and what would happen if you took out more or less at any given point – with the RetireEasy LifePlan. You can also check out the impact of putting funds aside for later life care. Go to: http://www.retireeasy.co.uk