Karen Brolly at Hymans Robertson responds to the FCA’s latest update and especially its conclusion on investment pathways for non-advised drawdown customers:

“Today’s announcement by the FCA is a sign of some much needed direction within the at-retirement space. Establishing a series of ‘FCA approved’ investment strategies will go a long way in protecting non-advised retirees who, in the time since pension freedoms were introduced, had been left to make some difficult decisions at the point of retirement. The FCA’s own analysis in its Retirement Outcomes Review found that over half (54%) of consumers choosing to access their pensions had chosen to withdraw them completely as a lump sum rather than entering into a drawdown strategy. In fact many are even choosing to hold their entire retirement savings in cash. This could cost them a great deal in additional income and is likely a symptom of a lack of trust in the pensions industry.

“With only 12 months to introduce investment pathways alongside the actual costs and charges information, there will be significant work for all drawdown providers, but hopefully the introduction of these pathways will provide clearer direction for consumers to invest appropriately even if they prefer not to use independent advice or without feeling like they need to withdraw it all as a lump sum. We also need to support individual understanding of what a sustainable withdrawal rate looks like for them in order to avoid the risk of running out of money in later years. Variations in pot size and financial situations and regional differences in longevity mean that sustainable withdrawal can look very different for different consumers. It is incredibly challenging to make sound financial decisions about the best way to fund your retirement if you don’t fully understand how long your pot needs to last.”

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