LITRG comments on options for reinvestment of pension funds

Released 7 August 2018

The Low Incomes Tax Reform Group (LITRG) has commented on the Financial Conduct Authority’s (FCA) proposals to resolve problems resulting from pension freedom reforms.

In June 2018, the FCA published a consultation on the options now available to all those converting their pension pots into alternative forms of income or capital. The FCA has serious concerns that many savers are simply re-investing their pots in cash savings or placing them in drawdown schemes without taking professional advice and without much idea of the risks and opportunities of investing in stock markets. In the LITRG’s response to the consultation document, it expressed no surprise at the FCA findings that one-third of non-advised consumers in drawdown were wholly invested in cash, with about half of these ‘likely to be losing out on income in retirement’. To those who are totally uninformed about pensions or the need to pick a drawdown product, cash is safe and understandable. This explains why people are withdrawing their entire pension pots and putting the money in the bank, sometimes with no specific reason for needing the cash, and triggering completely avoidable tax charges and benefit withdrawal issues. The LITRG suggests that more work is needed to educate and reassure the general public, not only about pensions and pension freedoms but about the detail of how drawdown works and about investing outside of cash. In the short-term, a more structured set of options, overseen by the Independent Governance Committee (IGC) could be an effective way of achieving a ‘better’ outcome for the majority of non-advised consumers.

View the submission at Retirement Outcomes Review: Proposed changes to FCA rules and guidance.

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