Pension firms offer consumers the necessary information to access pension freedoms without financial advice but many people premeditate their choices and do not always read the guidance, the Financial Conduct Authority (FCA) has said.
In the summary of its non-advised drawdown pension sales review the regulator said firms were providing the necessary information to customers in a clear and not misleading way through a number of different mediums – written, oral and online – to help them make informed decisions.
It found, however, that many people appear pre-emptively to make the decision to enter drawdown before contacting their providers and, as such, are not open to exploring all the options available to them, which includes shopping around for other decumulation options.
The FCA also said customers often failed to think about investment choices in drawdown, particularly when their sole main aim was to access their pension commencement lump sum.
It also found some people remained in low-risk assets after following lifestyling strategies, while others stayed in cash funds because they had had to enter into a new contract to access drawdown.
Consumers did not appear to be fully engaged with the risks of drawdown, according to the financial watchdog.
Turning to providers, the FCA said they did not always consistently highlight charges, which was more notable where customers access drawdown by a variation of their contract. This meant they only received detailed information about their charges at the beginning of their contract and not on an ongoing basis, it explained.
Generally, the regulator continued, firms gave customers “large amounts of information” to help them make informed decisions, but said people did not always read what was offered to them.
“Too many unadvised consumers are not engaging with the information providers send them because they have already made up their mind what they want to do,” said Royal London policy director Steve Webb.
“In addition, many are very focused on accessing their tax-free cash and give relatively little attention to where the rest of their money goes, often leaving it in low-return cash investments. There may be a case for reviewing whether people should be able to access tax-free cash and leave the rest invested so they do not lose out on future investment growth.”
As a result of this review the watchdog said it had asked individual firms to “review aspects of their non-advised sales processes”, focusing on “areas where we have identified possible non-compliance with our requirements for one or more parts of the customer journey”.
Its findings will help inform its final Retirement Outcomes Review report, which is set to be published before the second half of 2018.