Cash today, poverty tomorrow’ must be avoided, as large withdrawals from pension pots could mean later life hardship for many.
That’s the conclusion of a report out today from the Association of British insurers who say that Nearly five years on from their introduction, further reforms and safeguards are needed to ensure the long-term sustainability of the pension freedoms
There are concerns that if the current rate at which many people are typically withdrawing cash from their pension pots continues then future pensioners will be at risk of running out of money in retirement.
The report’s key recommendations include steps to tackle advice and guidance ‘black holes’, schemes giving mandatory risk warnings if people ask for transfers out of final salary schemes, later life financial reviews, and banning unregulated investments.
Huw Evans, ABI Director General, stressed that:
Huw Evans, ABI Director General“The jury is still out on the success of the pension freedoms. We will only be able to judge their true impact decades from now, once it is clear whether those who have exercised their choices have the retirement that they were hoping for.”
So far over £30 billion has been accessed from pension pots, with latest figures1. showing that, in 2018/9 alone, over 350,000 pension pots were fully withdrawn.
But the changes have also placed much greater responsibility on savers to ensure that they make the retirement choices that are right for them. Further reforms and safeguards are needed, as too many people are making complex and vital retirement decisions without help. According to FCA data in 2018/19 nearly half -48% – of people who accessed their pension pots did so without regulated advice or guidance.
Many of the current generation of retirees benefit from final salary pensions, which provide a guaranteed retirement income while they use other pension monies flexibly. But final salary pension schemes are in decline, and future generations will increasingly rely on pension savings without such guarantees. This makes it vital that they can access guidance and advice to help them make such decisions.