Industry fears customers are still not getting enough support with pension withdrawals

Withdrawal behaviours are among the top concerns of a third of pension providers, whilst two thirds fear this concern will only grow in the future as more and more people start to rely solely on a defined contribution pension.

A new report from the Association of British Insurers (ABI), 'Future Proofing the Freedoms: Supporting customer decisions about pension withdrawals ', published today found pension industry experts fear that many people are withdrawing from their pension without any advice or guidance, meaning that in future many could run out of money in retirement.

A change in the regulatory rules for advice and guidance is needed so the majority and not the minority get access to support for pension withdrawals. For DC pensions savers, deciding how much to withdraw from their pension can be confusing as it requires an understanding of the impact of inflation, how the tax system will affect you and how long you may need your money to last. Providers are currently limited in how much support they can offer without giving a personal recommendation, and therefore giving financial advice.

Changing this would enable providers to help pension savers with withdrawals by telling them about the implications of taking a lump sum; talking a customer through what a sustainable income could look like and prompting a customer that people in their situation often secure a guaranteed income at a particular age.

Yvonne Braun, Director of Long-Term Savings and Protection at the ABI, who will discuss the findings today at the Work and Pensions Select Committee evidence session on the Pension Freedoms, says:

'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% of people are unwilling to pay for financial advice and only 14% 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.'

The report also found:

• Many current retirees are making full use of pension freedoms. There are valid concerns about unsustainable withdrawals but right now they are mitigated by most retirees having other sources of income, particularly guaranteed income from defined benefit pensions. Future retirees will be much less likely to have other income to rely on and many will be relying solely on a DC pension.
• Investment pathways, introduced by the FCA in February 2021 to support customers' pension investment decisions, are intended to help avoid a mismatch of investments and withdrawal patterns. According to initial data from the ABI, they are being used as intended. But the policy is in its infancy, just a few months in, and it is important to monitor how customers use the pathways over the longer term.
• Most people are not getting the support they need to make decisions about withdrawals. The industry has an important role to play in providing this help, in addition to regulated financial advice and greater, earlier uptake of impartial guidance from Pension Wise.
• Pensions providers have improved the support they offer by more tailored communication and greater use of digital channels. 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. A change in the advice rules would enable them to do more.

Previous ABI data has found many people pressed pause on withdrawing from their pension in the first year of the pandemic. As restrictions ease and the vaccine roll out continues, we expect that an increasing number of customers will want to start to access their pension savings so changes to regulation are urgently needed.

Notes to Editors: