PIMFA discusses issues regarding Pension Freedoms at Government led inquiry – 2nd November 2017

PIMFA¹, the leading trade association for the personal investment management and financial advice sector in the UK, spoke yesterday (1 November) at the Work and Pensions Committee’s Pensions Freedoms inquiry.

The inquiry is looking into key issues such as what people are doing with their pension pots and retirement strategies, the advice gap and the take up of advice and guidance, and evaluating if steps being taken by Government and the Financial Conduct Authority are adequate steps to prevent scamming and mis-selling.

PIMFA highlighted their view that pension freedoms policy is welcome in empowering individuals to take control over planning for their retirement. It is seen overall as a positive development, embraced and utilised by many across of the UK with demonstrable positive effects on the performance and sustainability of invested income, especially when supported by a qualified financial adviser.

Concerns around reports of pensions scamming and mis-selling leading to poor investment outcomes were raised alongside how the provision of sound financial advice can substantially mitigate the issues in these areas.

The take up of advice was another key point discussed. While the industry is still seeing a high advice take up for consumers with larger pots, it is disappointing that a relatively large number of people with smaller pots are opting to take an unadvised cash lump sum.

The figures bear this out. Most defined contribution (DC) pots remain untouched and 4.7m DC pots belonging to those aged over 55 have not been accessed since April 2015. But smaller pension pots are being taken as lump sums. The highest number of full withdrawals comes from the 55-59 age band. There have been 227,000 full withdrawals in 2016/17, 87% of which have come from pot sizes of less than £30,000.

However it is relatively early days and it is important not to make value judgements about consumers who are opting to take cash withdrawals. Consideration of the drivers behind customer activity needs to be taken into account – indeed this is one of the benefits of financial advice – and early evidence suggests that individuals are not for the most part, squandering their pots.

PIMFA see a clear role for stakeholders across the industry in communicating both the value of financial advice on pension savings and ensuring that consumers are able to take full advantage of the freedoms. The benefits of advice can be demonstrated but changes in the perceived cost of advice following the Retail Distribution Review (RDR) are still being seen in the advice gap. Between October 2015 and September 2016, sales to consumers who did not take advice accounted for 63% of annuity sales and 30% of drawdown sales, while 94% of non-advised drawdown sales were undertaken by consumers staying with the same provider.

Liz Field, CEO at PIMFA said: “Pension freedoms remain a work in progress – the nature of long term savings choices means that by definition we won’t fully understand their impacts until the long term. PIMFA will continue to campaign for the promotion of a culture of long term savings and investments, and while we need to address costs and the advice gap we remain positive about the future provided that individuals continue to be able to access the right support at the right time”.