The Financial Conduct Authority has pledged to ensure consumers have the pension support they need after research revealed more than half of all pots accessed for the first time were done so without advice or guidance.
In a speech at the JP Morgan Pensions and Savings Symposium, FCA chief executive Nikhil Rathi said that after a decade of pension freedoms, the decisions around how to turn pension savings into income “become harder.”
Rathi said: “The defined contribution system expects consumers to take greater personal responsibility. Pensions is however a market marked by inertia, a lack of consumer understanding and ridden by fear. Most people never switch funds, many do not take timely advice in the years or decades before retirement and half admit to being totally disengaged when it comes to pensions.”
The city watchdog said it plans to empower and support consumers through its work on the Advice Guidance Boundary Review, which revealed that 53.5% of all pots accessed for the first time in the contract-based retirement income market were accessed without advice or guidance. Meanwhile, more than a third (34%) of over-45s with DC funds don’t understand their decumulation options.
The FCA said it wants to support the emergence of “commercially viable, high-quality models” of support for consumers to access through regulated channels and said it remains open-minded as to how digitalisation can support these goals.
Rathi said: “That means firms will have to manage risk rather than eliminate it. Firms must overcome their reticence to offer support for fear of being too close to the boundary or due to an overly cautious risk appetite. Of course, consumers need to accept that any investment carries risk, but we must be clear that receiving no support at all carries greater risk.”
Rathi said the Advice Guidance Boundary Review builds on the experiences of the requirement for firms to offer pension pathways for certain situations.
Rathi added: “Default products akin to pathways could make consumer choices easier, and we have already observed some product innovation. Such support does not eliminate the need for consumers to engage and pensions dashboards, which the FCA supports, are a tool that can help with that.
“A secure digital interface where consumers can find clear information about their pensions as they build up their savings. This should make it easier to plan for retirement, get advice and make informed decisions.”
