Pensions - Articles - Drawdown default investment pathways risk undermining advice

Aegon has given its support to the FCA’s focus in its Retirement Outcomes Review on customers who access pension freedoms without advice, but has warned that handled poorly, remedies such as the investment pathways could mislead customers into thinking there is less need for, or benefit in, seeking advice. Aegon cautions that the introduction of default investment pathways for those entering drawdown could create the damaging perception amongst non-advised consumers that the option is ‘ideal’ for their individual circumstances, when there will always be a limit to how tailored a default can be.

 The FCA highlights that with the move away from defined benefit pensions, defined contribution pots will grow in significance and Aegon has also pointed out this means an increasing number of people must be encouraged to seek the advice needed to make the most of hard earned retirement savings.

 Steven Cameron, Pensions Director at Aegon said: “With hundreds of thousands of people using pension freedoms to fund their retirement through drawdown, there’s a huge need for advice on investment choices and how much money to take in a given year, taking into account tax rules and likely life expectancy. 

 “For those who do not seek advice but don’t have the expertise to make their own investment decisions, the proposed range of investment pathways linked to high level retirement objectives could help. But turning this concept into a simple shortlist which people can identify with will be challenging. We mustn’t give people the impression any default can offer the optimal, personalised investment solution or that their availability removes or reduces the benefits of seeking advice.

 “Today’s retirement can last 30 years or more, so even those who don’t take advice at outset should be encouraged to do so as they move through different phases of retirement, to reflect changes in personal circumstances, review past investment and income choices, or consider funding social care. The need for and benefits in seeking advice at retirement will grow as maturing defined contribution pensions with their freedoms and choices increasingly take over from defined benefit pensions.”

 Aegon’s response also:

 • Rejects the need for any special treatment where non-advised customers use Self Invested Personal Pensions (SIPPs) for drawdown.

 • Supports independent assessment of value for money but with firms free to choose whether to do this through their Independent Governance Committee (as with workplace pensions) or by independent membership of their governing body (like Authorised Fund Managers).

 • Calls for equivalent remedies where the individual uses the Uncrystallised Funds Pension Lump Sum (UFPLS) alternative to withdraw funds.

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