Unsurprisingly following the introduction of pension freedoms, the latest report released by the Financial Conduct Authority has shown that consumers drawing down their retirement income directly from their pot has become the new norm.
Whilst this in itself is not so much of a worry – after all, pension freedoms was designed to provide consumers with more control and flexibility over their pension benefits – what is a little concerning is the fact that more and more people are accessing their pots early, without seeking financial advice. The report shows that around 30% of those accessing their retirement benefits flexibly are doing so without advice, meaning that a large number of retirees are drawing on their retirement fund freely without a structured plan for their retirement, or even shopping around for products most suitable for their circumstances.
We see it all the time with other financial products – car insurance, energy providers, even bank accounts and mobile phone contracts, where consumers are happy to take the time to shop around for the best deal. Yet the FCA’s report shows that the majority of people accessing their pension pot for the first time are happy to remain with their existing provider, without even considering the vast array of options that exist in the marketplace. In many cases, this means that people’s life savings not only have to withstand their income requirements for retirement, but also unnecessarily high fees being charged by default providers. Strangely, when given access to what is, for most, the largest sum of money in their lifetime, people are not inclined to ensure that this fund is looked after in the best way possible.
As well as the fact that most people don’t even know where to go to compare drawdown providers, the cost of advice has been cited as a major barrier for consumers. However, for a population that regularly pays substantial fees to estate agents, accountants and solicitors, it is striking that so few are prepared to pay for what is often invaluable professional advice in relation to their finances, especially when considering their retirement options.
It’s early days, and we should hopefully see a shift in attitudes towards retirement planning as pension freedoms evolves. For now though, some fine tuning is required to give consumers the best opportunity for a long, financially stable retirement.