Giving retirement savers the responsibility to make their own financial decisions is one of the main drivers of poor pension outcomes, says consumer watchdog the Financial Conduct Authority.
In a withering assessment of how pension freedoms have impacted the market since their introduction in April 2015, the FCA blames the measure in part for a ‘significant risk of harm’ in the savings market.
Under pension freedoms, tens of thousands of retirement savers have withdrawn nearly £40 billion from their lifetime savings.
Quality of financial advice under scrutiny
Setting goals for the watchdog’s latest business plan, the FCA pledged to focus on the suitability of pension transfer advice from defined benefit to defined contribution pensions.
Defined benefit (DB) pensions typically offer a guaranteed retirement income that rises with the cost of living and other benefits. Defined contribution (DC) pensions pay according to the pension fund size and offer no guaranteed income or inflation-linked increases.
The regulator will also look at advice given to retirement savers about how to draw cash from their pension funds.
The worry is too many savers are losing money to pension scams.
The FCA says savers lose an average of 22 years of saving or three times their annual income if they are caught up in a pension fraud.
Sources of harm constantly evolve
The business plan says: “We aim to ensure that consumers can rely on safe and accessible payments to receive their pay or benefits, settle bills and access cash, that they do not get into unaffordable debt and are treated well if they do, can make effective investment decisions about their savings, and are not exposed to risky or poor value products and are offered fair value products in a digital age and are not at risk of being treated unfairly in the pricing and other terms they receive.”
The FCA also explained that the coronavirus crisis had upset the organisation’s plans as well as the financial lives of consumers and the way markets work.
“The guiding principle of all our work is preventing or reducing harm to consumers and markets. Changes in the range of financial products available mean the sources of harm are constantly evolving,” says the business plan.