Just over one in three (37 per cent) of all drawdown products are sold on a non-advised basis, according to the Financial Conduct Authority.

According to latest research published by the FCA firms are providing savers with relevant information and pointing them in the right direction, but unadvised individuals have often made their mind up about what they want to do before they approach a provider.

"Firms provided customers with written, oral and online information which was made available both at the point of accessing their retirement benefits, and afterwards, to help them make informed decisions," the report said.

However, the FCA warned of "potential harm in the future" such as running out of money due to savers not engaging with the information provided and making, or taking financial advice.

"Many customers are now choosing to access their benefits ahead of their intended retirement date. They appear to have already made the decision to enter drawdown before contacting firms. This means that some customers appear not to be open to exploring the full range of options available to them. This includes shopping around for other decumulation options," the FCA said.

The FCA also warned that customers have often not thought about the investment choices of drawdown. This is particularly the case when their main aim is to access their pension commencement lump sum (PCLS) only, without taking any immediate income.

"As a result, we have seen some customers remain in low-risk assets after following
lifestyling strategies. We have seen others stay in cash funds because they have had to enter into a new contract to access drawdown. Both these options increase the risk of customers running out of money in retirement, or having less money than they were expecting," the report said.

Commenting, Royal London director of policy Steve Webb said: “The FCA’s research reinforces the value of taking financial advice when making key at-retirement decisions. To many unadvised consumers are not engaging with the information which providers send them because they have already made up their mind what they want to do.

“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 that they do not lose out on future investment growth. We also need to make sure that people get wake-up packs and other information much sooner, rather than after they have made up their minds."

The Pensions and Lifetime Savings Association however, warned that the report shows people are struggling in the absence of advice. PLSA policy lead for DC Tim Gosling said: “The need for default investment pathways in non-advised drawdown to ensure good outcomes for savers is now clear. The FCA suggested this as a customer protection measure in the interim report of the Retirement Outcomes Review and we believe they should now follow through on that in their final report.

“In the future, the PLSA would like savers to benefit from a decumulation process that supports them in making good decisions throughout the course of their retirement. In particular we need to learn from the success of automatic enrolment and the power of defaults while still preserving retirees’ freedoms to act as they wish.

"We propose that trustees or IGCs should be able to select a decumulation product appropriate to the membership of their scheme and should sign-post their members to this product at retirement. This would create a clear path to a suitable income product for scheme members to follow if they chose. Members would be encouraged to make an active decision; and no member would be moved into the sign-posted decumulation product or solution without their explicit consent.

“We look forward to continuing to work with the FCA and our members on this matter; and will continue our own research as part of our Hitting the Target project.”

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