Government departments, regulators and key industry experts should come together and reset the failing at-retirement process policy to improve pensioner income, investment management firm Hargreaves Lansdown has urged
Tom McPhail, head of pensions research at Hargreaves Lansdown, said the at-retirement processes, through which people convert their savings into an income, were not working.
He said: 'Only a minority of investors are shopping around effectively but many more are being let down by a system which needs a thorough overhaul.'
Hargreaves Lansdown has provided some recommendations on how to improve the process of converting retirement savings into income. The firm wants a reform of 'trivial' commutation rules.
'If it were easier to take small defined contribution pots as a lump sum then investors could get more control of their savings, the Treasury could get its slice of tax sooner and the pensions industry would be able to deal more efficiently with the remaining larger pension pots,' the firm said.
The Treasury also needs to simplify the 'myriad' layers of lifetime allowance (LTA) protection, warned Hargreaves Lansdown.
'If the Liberal Democrats get their way and reduce the LTA to £1m, then there'll be even more [layers],' continued the firm.
'The Treasury's policy of progressively restricting the permitted level of tax-free pension savings is stifling the savings culture and adding to the world's over-supply of bureaucracy.'
Hargreaves Lansdown also called for the retirement process to start earlier. It 'shouldn't be left until the last six months before retirement. Wake-up packs and the at-retirement decisions making should be started five years before retirement'.
Another area to improve was investor engagement. Savers should not rely on their 'default option' and shop around for a retirement income solution.
Hargreaves Lansdown said it would write to the Treasury, Department for Work and Pensions and the Financial Conduct Authority, as well as the Association of British Insurers and the National Association of Pension Funds to propose a basic review of the at-retirement system.
A DWP spokeswoman said: 'The government recognises the importance of people being able to make good decisions about their pension savings at the point of retirement, which is why the government has been working with industry, consumer groups and other stakeholders to improve the process for consumers at retirement.
'The government values industry collaboration on these issues and welcomes stakeholder input.'