More should be done to simplify the decision-making process for consumers accessing pension freedoms, the Institute and Faculty of Actuaries (IFoA) said today.
31 AUGUST 2016 | CINTIA CHEONG
The IFoA's comment comes in response to the Financial Conduct Authority's (FCA) review into retirement outcomes, which examines how effectively competition is working in the retirement income market under the reforms.
The Institute believes while greater choice enables people to best meet their personal retirement needs, they can be overwhelmed and this could have a negative impact.
For more engaged consumers, the IFoA recommends a focus on people’s goals for retirement and a targeted communication strategy tailored to the individual.
In addition, people's financial capability should be built through communications over time, making the decision-making process more manageable.
For non-engaging members, appropriate defaults for accessing their pension pots could help to prevent poor outcomes.
"It is important that any defaults have an effective governance structure in place and that robust consumer protections are in place to prevent consumers becoming tied into any potentially unsuitable products," the IFoA added.
The Institute also noticed the current regulatory framework has in some cases promoted a 'tick-box' approach rather than helping consumers in their financial decision-making.
Colin Wilson, president of the IFoA, said: "Communications about retirement outcomes should focus on an outcomes-based approach, where individuals plan for the type of retirement they aspire to and set saving goals much earlier in their working lives, as a better approach to engage consumers and help them understand how much they will need to meet their retirement goals.
"We welcome the FCA's consultation on retirement outcomes and look forward to working with them on how to further engage and inform consumers so they can make the right choices for themselves."