Withdrawal behaviours are among the top concerns of a third of pension providers in the UK, with two-thirds fearing this concern will grow as more people rely solely on a defined contribution (DC) pension.
That is according to a new report from the Association of British Insurers (ABI), which reveals that pension industry experts fear that many people are withdrawing money without any advice or guidance.
Although there are valid concerns about unsustainable withdrawals, the report highlights how these are currently mitigated by the fact that most retirees have other sources of income, particularly guaranteed income from defined benefit (DB) pensions.
However, the ABI said that future retirees will be much less likely to have other income to rely on, and many will be relying solely on a DC pension.
It argued that a change in the regulatory rules for advice and guidance is “urgently” needed so that the majority of savers get advice around withdrawals, particularly as lockdown restrictions ease and more people look to access their pensions.
“We need to create an environment where people have far more support when taking decisions about accessing their pension,” said Yvonne Braun, director of long-term savings and protection at the ABI.
“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.”
Pension providers are currently limited in how much support they can offer without giving a personal recommendation, and therefore giving financial advice.
The ABI said that changing this would enable providers to help pension savers with withdrawals by telling them about the implications of taking a lump sum, and talking a customer through what a sustainable income could look like.
Its report highlights how pensions providers have improved the support they offer by more tailored communication and greater use of digital channels.
However, it said that the industry could go further still, by improving how pension options are presented to customers and define boundaries to shape decisions, so customer decision making is simpler and safer.
“We need to act now to protect future retirees,” Braun continued. “Future retirees will be far more dependent on their DC savings than current retirees, the great majority of whom have DB pension income.
“This means the decisions they make about their pension savings at retirement will be even more critical.”
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Author: Chris Seekings