Freedoms;- the Treasury got us into this mess, can the FCA get us out?


It is good that the FCA are looking at the introduction of Pension Freedoms through experience. Here’s what they’re finding.

  • Over half – 52 per cent – of fully withdrawn pots were not spent but were moved into other savings or investments. Some of this is due to a lack of public trust in pensions. This can result in consumers paying too much tax, missing out on investment growth or losing out on other benefitsbriefcase2

Where does this distrust in pensions come from?

  • Consumers who access their pots early without taking advice typically follow the ‘path of least resistance’, accepting drawdown from their current pension provider without shopping around.briefcase2

The line of least resistance?


  • Consumers are increasingly accessing drawdown without taking advice. Before the freedoms, 5 per cent of drawdown was bought without advice compared to 30 per cent now. Drawdown is complex and these consumers may need more support and protection.briefcase2

Free money?


  • Providers are continuing to withdraw from the open annuity market which could bring a risk of weakened competition over time.briefcase2

Is anyone surprised that the open annuity market is screwed?


  • Product innovation has been limited to date, particularly for the mass market.briefcase2


The quotes are taken from FCA research. What people say is that they are prepared to take huge decisions with the money they could be relying on for the rest of their lives typically on a whim.

Of course there are many more who are silent (the silent majority) and most people I know are sitting doing nothing, saying nothing and waiting for something obvious to do.

Ros Altmann is keen to criticise the pension industry for not innovating. She doesn’t like the phrase “default option”, so I’ll stick with “something obvious to do”. The obvious thing for me to do is to remind Ros that it was her who froze the Defined Ambition regulations as they were being drafted, only months after primary legislation had been enacted.

The organisations – including those working as Friends of CDC – who had invested heavily to bring innovation to the market, are right to feel frustrated. If the original legislative timescale had been followed, we could have expected to see the finalised secondary legislation around the end of this year.

Instead, even if the Government gave the green light to those in the DWP who were working on this , it is unlikely to be till 2021 that we have the opportunity to bring new products to the market.

The FCA are stating the blindingly obvious.

Much of the loss of trust in pensions is down to Government, the FCA is a Government agency; it must recognise that regulation is part of the problem.

People do not shop around for drawdown products because it is impossible to do so. Show me one comparison site that is brave enough to rate one drawdown product over another! No-one would insure that site even if anyone could figure out a way to offer it without being held responsible for outcomes.

Drawdown is , as the FCA says,  “complex”. I spoke this morning to one of the big-hitters in the bulk buy-out market, he’d taken his CETV last year and told me he was troubled by the amount of time (his) and money (his) he was spending managing his pot and with his financial advisers. He didn’t criticise his advisers but pointed out that only a handful of people he knew would be prepared to pay the advisory fees he did. The problem is in a system that is complex to the point that there is no obvious thing to do.

Annuity providers are indeed withdrawing from the market. Why insure risk when you can make risk-free money out of drawdown? Our great insurers like Standard Life not only want out of annuities, they want out of insurance. The Pension Freedoms have killed collective insurance, liability pooling and risk sharing.

Nothing that the FCA says can be disagreed with, but the implication that the problem is with the pensions industry is disingenuous, the problems identified were created by Government and intensified by Government. This is a Government problem.

The FCA should seriously consider coming to our next Friends of CDC meeting to get some answers to their problems!


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to Freedoms;- the Treasury got us into this mess, can the FCA get us out?

  1. nigel hawkes says:

    The pensions freedoms are not the problem:they are the solution to annuities offering such poor value for money. You are right about trust, people do not trust the government, their employer or the industry generally on pensions.Final salary schemes in the private sector are not safe and have been regulated to the point of inaccessibility to new employees. Defined contribution schemes offer no certainty of any return. Auto enrolment is a tyranny which removes the responsibility from individuals to provide for their futures and leaves the state open to blame when their savings leave them in penury.
    It is possible that the pensions freedoms will encourage more saving and help restore trust in pensions particularly if annuity providers offer more competitive products.

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