Pension Freedoms: Breaking the Cycle

The new pensions freedoms introduced in April of this year promised to give savers greater control and flexibility over their retirement savings. However, in practice, many have found accessing their money challenging and frustrating, with excessive fees, red tape and no clear solutions.

Given we work with close to 20% of financial advisers in the UK, we’re in a unique position to discover the real issues clients face when it comes to pensions so that we can put forth solutions for change.

After polling True Potential advisers, they told us that, since the pension reforms came into force:

• Less than 25% of enquiries led to clients accessing their money
• 48% of advisers have led as little as 10% of enquiries to a successful conclusion

Why is the System Failing Savers?

Our research found two key issues that urgently need to be addressed:

• Financial advisers are afraid to advise on pension transfers
• Switching pensions is too complicated and expensive for many savers

We’re clear that, without resolving these issues, the pensions revolution will not reach its full potential.

Three Simple Solutions

For the pensions freedoms to work in the best interests of savers, we see three solutions that must be implemented:

1. Robust guidelines on pension advice
The Financial Conduct Authority must provide sensible, robust guidance for cases of insistent clients. Financial advisers must be confident that they will not be punished for events beyond their control. A simple process would quickly solve this red tape issue, which costs clients money.

2. Enforce a cap on management charges
A cap on annual management charges would significantly reduce the burden on financial advisers to prove their client is moving to a better pension. We suggest extending the auto enrolment cap of 0.75% to all flexi-access income drawdown pensions. With reduced evidential requirements for advisers, clients with smaller pots could more easily afford the advice they need to move pensions.

3. Ban pension providers from charging exit fees
Exit fees are an out-of-date restriction in an age of freedom. They only benefit large providers who are failing to offer their customers a fair deal. Removing these charges would mean that savers aren’t penalised for making use of their freedoms, especially where their provider doesn’t offer competitive flexi-access drawdown terms.

Our Next Steps

With our research showing that the pension freedoms will not reach their full potential under the current system, we’re campaigning for change.

We’ll be sharing our full report on pension freedoms and our proposed solutions with Government Ministers, MPs and industry leaders. This research is closely linked to the latest Green Paper from the True Potential Centre for the Public Understanding of Finance, which highlights some of the main issues savers in the UK face today, including simplifying complex investment products.

Only by confronting the root causes of the UK’s problems with saving, can we create better outcomes for savers. Our approach would enable both financial advisers and clients to take greater control of the future. We don’t think there’s a moment to waste.

Read our report on the pension freedoms >

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