The onus is on pension providers to help prevent people misusing their retirement pots, says one of the region’s top IFAs.
Under recent reforms, anyone over the age of 55 can take as much of the cash from their pension pot as they want.
The Financial Conduct Authority (FCA) says that withdrawals from pensions have risen 14% in a year from £13.5 billion in 2015-16 to £15.3 billion in 2016-17 and there are fears that, without proper advice, some people may be left penniless in their old age.
The Which? “Can you be trusted with your money?” investigation interviewed 205 people who made use of the new pension freedoms in the last 12 months. It found that savers mostly used the flexibility in a “sensible and calculated way.”
This was backed up by the FCA, who says that: “contrary to the concerns expressed before the pension freedoms, we did not find that most consumers spent this money on consumer goods and services, such as cars and holidays.”
However, Which? added that they are concerned that consumers do not receive enough advice about what to do with the money, increasing the risk that they choose the wrong investment in drawdown.
Which? believes the government should put a cap on charges for the least actively involved consumers as there is a “vast array of complex charges for income drawdown, including up to 16 administrative charges.”
But Antony Barton, IFA at Robertson Baxter, believes: “The answer lies in pension providers putting together risk managed solutions designed to achieve capital growth at the balance of low volatility and achieving a sustainable yield of around 4% pa.
“The FCA is set to publish its final proposal on how to make pension freedoms work early in 2018, hopefully this will help to apportion responsibility in the right areas,” he added.
“Until then, those who need further information should contact their provider or their financial adviser.”
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