Rule change needed to allow for stronger support on pension withdrawals - ABI

Industry experts have raised concerns that savers are not receiving enough support with pension withdrawals, with a report from the Association of British Insurers (ABI) revealing that 33 per cent of providers cited withdrawal behaviours as one of their top concerns.

The report, produced in conjunction with Frontier Economics, found that a further 55 per cent viewed this concern as being equally important as other concerns related to pension freedoms, and two-thirds thought that these concerns would continue to grow in future.

It also noted that industry experts have raised concerns that many people are making withdrawals without any advice or guidance, citing figures from the Financial Conduct Authority that showed 52 per cent of pots were accessed without advice or guidance.

Despite the limitations in place, the report suggested that all providers have improved customer communications, particularly through digital channels, with Covid-19 presenting an opportunity for providers to improve their journey and offer additional support.

However, it clarified that rule and practice changes are needed to allow more support to be put in place, warning that "pure defaults" will not work given the "rich diversity" of retiring customers' circumstances and preferences.

In light of this, the ABI called for a change in the regulatory rules for advice and guidance to ensure that savers are getting access to support for pension withdrawals, with providers currently limited in how much support they can offer without giving a personal recommendation, and therefore giving financial advice.

It argued that by changing this, providers would be able to support savers with withdrawals by sharing information on the implications of taking a lump sum, as well as having discussions as to what a sustainable income might be.

ABI director of long-term savings and protection, Yvonne Braun, commented: “We need to act now to protect future retirees. Future retirees will be far more dependent on their defined contribution savings than current retirees, the great majority of whom have defined benefit pension income.

“This means the decisions they make about their pension savings at retirement will be even more critical. But we know 72 per cent of people are unwilling to pay for financial advice and only 14 per cent of retirees are using PensionWise.

“We need to create an environment where people have far more support when taking decisions about accessing their pension.

“This includes both increasing the number of people accessing PensionWise and enabling providers to offer more help. The report shows providers can and want to do far more to help customers, but to enable them to do it, we need a change to the rules around advice and guidance.

“Now is the time for the government to act so the majority and not the minority of pension savers get the support they need so they can make the most out of their retirement savings.”

Furthermore, whilst the report suggested that Investment Pathways have helped address the risk of investment and withdrawal patterns being mismatched and are being used "as intended", it clarified that customers still need to make multi-faceted decisions about withdrawals.

More broadly, the report also stated that whilst there are valid concerns about unsustainable withdrawals, right now, they are mitigated by most retirees having other sources of income, particularly from defined benefit pensions, warning that future retirees will likely have much less alternative income and may be relying solely on a DC pension.

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