We all like having control and being able to pick the thing that suits us best. While many of us will appreciate the surprise gifts we receive this Christmas, I am sure there will be other presents we wish we had been consulted on first.
It is this principle of freedom and choice that led the government to expand the retirement market over the past few years. As a result, people are taking active decisions about what to do with their savings, rather than automatically taking out an annuity.
More than £14bn has been withdrawn from pension pots since April 2015. While it is right that people are empowered when it comes to what is ultimately their money and their retirement, many may not feel equipped to make these decisions.
Most savers will take the path of least resistance, so it is sensible to put forward investment options that offer them a good outcome and are based on what they want from retirement
Choice is only suitable if people are well-informed, and the market needs to innovate to support these new savers.
The new generations of automatically enrolled savers need more support and guidance if they are to achieve good outcomes.
Over the next two years we will see auto-enrolment contributions quadruple, leaving much larger pension pots at stake. It is therefore imperative that we act quickly to help protect savers.
FCA sounds the alarm
This is a conclusion reached by the Financial Conduct Authority in their ‘Retirement Outcomes Review’ report, which says the retirement market does not currently work for all savers.
There are already some early warning signs surrounding the decisions people are making. Over the past three years £43m has been lost to pension scams, and an increasing number of people are accessing their pension savings without seeking advice or shopping around.
The foremost priority should be to ensure that consumers are protected. Without the right support structures in place our members are at risk from fraud, paying more in charges and taxes, missing out on investment growth, and either running out of money too soon or underspending their pots.
We need to help this fledgling defined contribution market evolve, and to introduce innovation in the products on offer.
Defaults provide support
This is where the industry can step up. After all, we are the experts. We are here to offer that helping hand to savers in navigating something we specialise in.
We should be developing a system of governed default retirement pathways.
Most savers will take the path of least resistance, so it is sensible to put forward investment options that offer them a good outcome and are based on what they want from retirement.
This would mean giving savers access to well-researched options that will produce an income for life at good value.
Drawing down a pension pot, often from an early age, is seen by some as becoming the new norm, but this will not help savers who do not understand the complexities of managing their own retirement funds.
Advice market may be letting savers down
Retirement solutions, including drawdown products, need to be carefully managed with decisions revisited regularly, and yet the FCA found that many consumers buy drawdown without even getting initial advice.
Research also shows that some savers find the advice sector unaffordable or inaccessible, and that even if they do speak with someone they have difficulty understanding the financial information they receive.
We need to listen to this evidence and ask whether we can do more to improve the service we offer.
We want to see the industry adapt, keeping up with the huge policy changes we have experienced over the past five years.
This means having well-governed default options in place to complement a thriving and competitive advice market, which will help to avoid any sort of pensions mis-selling. Otherwise, decades of hard saving by workers could be undone right at the end.
Gavin Perera-Betts is chief customer officer at mastertrust Nest
