Pension freedoms could lead to another major financial scandal, thanks to a dearth of advice on retirement options, coupled with a lack of innovation from the pensions industry.
This was the conclusion of a new report published by Age UK. Pension specialists interviewed for report say they fear a scandal in the next few years, particularly if there is a market downturn.
It wants to see more innovation from the industry on issues like the Pensions Dashboard, and has called for Nest to be allowed to offer retirement products.
The report says a lack of innovation since the introduction of the pension freedoms four years ago is forcing many older savers into making complex pensions decisions without advice or support, or without appropriate products to choose from, according to the paper.
Age UK is warning that the potential for – and consequences of – customers getting it wrong are huge.
Many older people are unaware of the need to factor in elements such as upcoming tax bills and state benefit rules, and the charity is concerned that getting to grips with the new flexibilities is an extremely challenging for the majority of savers.
The charity is also worried that limited innovation aimed at consumers with small to medium-sized pension pots has left many lacking access to good-value and appropriate products.
Age UK says there is now a real risk that many older people who have not understood the risks of drawdown, or who are holding inappropriate investments because of inadequate advice could suffer losses.
Figures from the Financial Conduct Authority (FCA) show that over 90,000 consumers run the risk of running out of money in a market downturn unless they cut the amount they are taking out
This Fixing the Freedoms report calls for urgent action from the pensions industry to address these concerns, and has made a number of key recommendations to allow those with modest pension savings to get a better deal from pension freedoms.
These include a call for Nest to be allowed to offer retirement products. It also wants to see a charge cap introduced on drawdown products.
Age UK has also called for the introduction of better investment pathways into retirement, with stronger governance, as well as better rates paid on cash deposits.
Allied to this, Age UK says there needs to be clearer warnings for those cashing in their pensions, particularly regarding potential tax payments and the impact on state entitlements. It also asked for savers to be given the option to think again on withdrawals.
Finally, it says the industry must offer default guidance, with an independent opt-out process. It says it wants to see the industry develop pensions dashboards more quickly, and take stronger action to end inappropriate DB transfers.
Age UK charity director Caroline Abrahams says: “The Pension Freedoms introduced in 2015 have been really popular to date and there’s no doubt that many are enjoying and benefitting from the greater flexibility they’ve been given.
“However, we are worried that a lot of older people with small and medium-sized pension pots are making risky decisions.
“Without decisive action the level of detriment will increase as more consumers reach retirement. Engaging and empowering consumers by providing them with information and encouraging them to take up guidance is important, but not enough on its own.
“The Government and the FCA need to take a far more proactive approach to ensuring that these consumers get a good deal so that if and when a market storm hits, it does not destroy public trust in pensions and the reasonable aspirations of thousands of consumers for a comfortable retirement.
“The onus is on the Government to make it easier for people with modest amounts of pension wealth to take smart decisions that really will benefit them into the longer term, not just today, through increased use of default options.”