Jon Hatchett, Partner, commented on the Work and Pensions Select Committee’s probe into pension freedoms:

“When F&C was announced the writing was clearly on the wall for what we are experiencing now. While the removal of restrictions on how people can access their savings has generally been welcomed, in reality people tend to withdraw their pension savings at a much faster rate than they would have done if they’d remained in a DB pension or were forced to buy an annuity. It has neither increased saving nor “strengthened the incentive to save”.  At best it has weakened one disincentive to save. And we’re likely to see ever increasing numbers of pensioners in poverty as a consequence.”

Explaining how people have been exercising their freedoms, Jon added:

“The recent FCA Retirement Outcomes Interim Review showed that accessing pension pots early is the norm. A huge worry is that 52% of those who cash in their pension simply invest it into another savings or investment vehicle, missing out on more tax-efficient savings options. This behaviour is totally irrational and highlights the lack of trust and ownership that people feel towards pension saving. Worse still the FCA review highlighted that 57% of consumers with a Guaranteed Annuity Rate gave it up for cash.

“Unless action is taken now, there’s worse to come, particularly over the next decade or two. It is vital that savers get the right advice if they are to avoid poor financial outcomes when they retire. It was of enormous concern to see the FCA reporting that 30% of consumers are accessing their funds without advice. One option might be to make a consultation with Pensions Wise compulsory before an individual is permitted access to their pension fund. But more importantly we need better guidance and advice all through a person’s working life, not just at the point of retirement.”

Commenting on the dire need for a coherent retirement savings strategy, Jon added:

“The freedom and choice reforms were not part of a coherent retirement savings strategy. They were a political manoeuvre by Osborne to bring forward tax receipts and score points by freeing people from unpopular annuities. Neither is it coherent with personal taxation policy.

“To build a coherent savings strategy we desperately need to de-politicise the policy making process for long-term savings. The decisions that we have to make as a nation are far from easy, and there is a serious question mark over whether there can ever be political will to take a truly long-term view – largely because many decisions would be politically unpopular.

“In terms of more immediate actions, the FCA and Government could do more to support automated advice and give regulatory certainty to IFAs.  Recent consultations help but just don’t go far enough. 

“While we’re unlikely to ever return to a situation where we have enforced annuitisation, it’s imperative that we guide and support people to manage their pots over their lifetimes.  This requires more and better advice frameworks throughout a person’s working life, and not just at point of retirement. Consumers have a long journey of education and understanding to go on. We’ve only seen baby steps so far.”