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UK pensions scheme calls on FCA to limit pensions freedoms

Out-Law News | 20 Sep 2017 | 10:11 am | 1 min. read

The UK's state-backed pensions scheme, the National Employment Savings Trust (NEST), has asked for limits to be put on pensions freedoms to protect its members from losing retirement savings.

In a response to the Financial Conduct Authority's (FCA) retirement outcomes review, NEST said its members were “particularly vulnerable” to paying more in charges and taxes, missing out on investment growth, running out of money or underspending their pensions pots.

It called for “governed pathways” to provide more support for savers, especially those on lower incomes.

The FCA launched the review in July 2016 to study how the retirement income market is evolving since new pension freedoms were introduced in April 2015. The reforms allowed members of defined contribution (DC) schemes more freedom to access their savings once they turn 55 without facing heavy tax charges or largely having to purchase an annuity to give them an income for life.

In July this year the FCA produced an interim report which said it had some concerns that savers may not be obtaining "good value" when deciding what to do with their money without first taking financial advice.

In its submission NEST said it supported the FCA's interim findings that default pathways, independent governance and measures to help customers shop around were needed to avoid the risk of consumer detriment.

It said savers on low to medium incomes needed more support in accessing their pensions, with many finding advice unaffordable or inaccessible, struggling to interpret financial information, or having difficulty assessing risk.

Pensions expert Tom Barton of Pinsent Masons, the law firm behind Out-Law.com, said savers often found the transition between saving and receiving their pensions difficult.

“Under the auto-enrolment system everything is done for members until retirement – joining, contributing and investing. At retirement they face a highly complicated and hugely significant decision all on their own. At the moment it just about hangs together because DC pots are generally small and members will often take the cash,” Barton said. 

“We do need measures to help people make best use of drawdown, annuity and blended options especially since (and this is nothing new) the statistics show that members don’t shop around,” Barton said.

“A combination of a 'do it for them' approach plus advice and guidance solutions might just do the trick.  However, risk will remain in the system, whether for members or those taking decisions and judgement calls on behalf of members,” Barton said.