02Oct

Andrew Bailey, Chief Executive of the Financial Conduct Authority (FCA), gave a wide-ranging speech on the pensions landscape when he addressed the Gleneagles forum in September 2018.

The key points of his speech were:

  • Many people are not saving enough for their retirement, with some not saving at all. Just over 15 million UK adults of working age are not currently making pension contributions, and the majority (51%) of self-employed people have no type of pension arrangement whatsoever. Of those saving via defined contribution pensions, just under a quarter (22%) have less than £5,000 and a further 14% have less than £20,000 in their pot
  • The FCA believes it is important to encourage competition within the retirement market. FCA research has found that a lack of shopping around means consumers are not taking out the most appropriate annuities, and the ’wake-up packs‘ sent by providers are too long and hard to understand
  • The regulator is keeping open the option of capping various charges, but is not convinced that this will be a solution to any particular issue
  • Debt levels for the under 35s have been steadily increasing, partly due to the need to repay student loans, thus reducing amounts available for saving
  • Mr Bailey’s personal view is that it is appropriate to retain the pension freedoms, introduced in 2015, at least for the present. Since 2015, although around half of the two million cases of a pension pot being accessed for the first time have involved a full cash withdrawal, the average size of these withdrawn pots is only around £15,000. Those aged under 65, rather than older retirees, are also more likely to make a full cash withdrawal. The FCA is concerned about consumers making full cash withdrawals simply to move the funds elsewhere
  • Although there are still more than seven million annuity contracts in force, and less than one million pension drawdown plans, the gap is narrowing. Around 60% of current drawdown sales involve no income being taken, and around 30% of drawdown plans were taken out without receiving professional advice. Many consumers are taking “the path of least resistance” and accepting the drawdown offer made by their existing pension provider, without shopping around, indeed this applies to as many as 94% of those who opted not to receive advice, compared to 35% of those who did get advice. Of the non-advised drawdown customers, just over 30% have their entire plan invested in cash, and the FCA believes that most of these consumers are likely to be losing out on income in retirement as a result

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article