Nearly half of providers want more controls on pension freedoms

The Defined Contribution Investment Forum (DCIF) has found that a large minority of pension providers believe that pension freedom rights should be subject to greater controls.

The forum, made up of 13 different investment houses, has surveyed 18 DC pension providers to discover how they have responded to the liberalisation of the UK’s DC pensions regime.

Out of the providers — who manage pension accounts for nearly 1.1 million employers — almost half admitted that they feel that people’s ability to withdraw money from their pensions should be curtailed.

In addition, most felt consumers should be challenged further when they were taking their money in full or making decisions that would result in a hefty tax bill.

In a report, called Five years of freedom: Evolution, not revolution, the DCIF also reveals that take-up of advice and support offered by providers remains low, which may partly explain why they wish to see the introduction of more controls.

The report states that the majority of the top providers are offering savers support in the form of access to advice. In many cases, this is cheaper than using a traditional independent financial adviser, with one provider even offering advice for free.

Several reasons were offered by providers to explain the low amounts of savers accessing advice, including: a general lack of understanding and appreciation of the value of advice; relatively few members actually planning for retirement when they first access their savings; members having already made their mind up what to do by the time they got in contact with their provider; and the fact that those who are inclined to take advice may already have their own financial adviser.

A lack of controls and take-up of advice is further exacerbated by provider’s fears that pension scheme members are making decisions in silos. “That is, thinking about each of their pension pots in isolation rather than considering their overall position,” said the report.

“This view is supported by our survey, where one in five (20 per cent) of those who had made an access decision since 2015 could not say how much was left in their combined DC pension pots.”

According to the DCIF, a couple of respondents have also wondered as to whether the Government should consider looking again at the Minimum Income Requirement, which required consumers to have at least a yearly guaranteed retirement income of £12,000 before they could have full freedom to cash out retirement savings and was abolished in 2015.

“While significantly reduced from its pre-2014 level of £20,000 pa it’s worth noting that on today’s annuity rates one would need around £70,000 in DC savings to meet the requirement by purchasing an annuity to top up the flat-rate State Pension,” said the report.

“Clearly, reintroducing the MIR would significantly curtail pension freedom for huge numbers of consumers.”

Providers also remain concerned about the fine line they must tread between the necessity of supporting members and the risk of straying into offering advice, but the operational cost of providing freedom and choice was not such a big concern for most, according to the DCIF’s survey.

The report also states that providers reject the notion that they have not innovated since freedom and choice. “Many pointed out how they transformed their systems to offer pension freedoms in the twelve months George Osborne gave between announcement and implementation,” it said.

“Providers have also invested heavily in improving their retirement offerings, particularly in the areas of engagement and member support at retirement. Many believe we already have the products we need; the real challenge is in ensuring members receive the right combination to meet their needs.”

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