The Association of British Insurers (ABI) publishes ‘Future-proofing the Freedoms’, which looks at pension withdrawal behaviours since the introduction of pension freedoms in the UK.
The UK Government introduced pension freedoms in 2015, giving people substantial flexibility in how they can access their pension savings, whereas previously, annuities were the only option available to most savers. The Association of British Insurers has today published a report, prepared in conjunction with Frontier, on ‘Future Proofing the Freedoms: Supporting customer decisions about pension withdrawals’. The report explores pension withdrawal behaviours in light of the ‘pension freedoms’.
While many people stand to benefit from pension freedoms, decisions about how much to withdraw from your pension can be confusing as it requires an understanding of the impact of inflation, how the tax system will affect you and how long you may need your money to last. Pension industry experts fear that many people are withdrawing from their pension without any advice or guidance, meaning that in future many could run out of money in retirement.
The report shows that many current retirees are making full use of pension freedoms, but most are not getting the support they might need to make good decisions. There are efforts to address this concern: the recently introduced Investment Pathways may help customers avoid a mismatch of investments and withdrawal patterns, although further monitoring of outcomes will be required. Pension providers have also improved the support they offer, particularly through digital channels, but the industry could go further still.
Paul Cullum from Frontier’s financial services practice commented: “The challenge of supporting customers with withdrawal decisions, without giving advice, is difficult for providers, given what they know about customers’ wider financial circumstances. But, there are promising approaches that could be applied more widely to better support customers and avoid harm, such as ‘guardrails’ that introduce friction into the customer journey when a customer’s withdrawal behaviour is inconsistent with their previously stated intentions. And more generally, choice architecture could be strengthened further if providers offered a number of defaults through ‘withdrawal pathways’ suited to different goals”.
Frontier regularly advises on issues in the financial services sector.
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