The insurance and investment providers’ body says nearly half of people are using the Pension Freedoms without taking regulated advice and many are withdrawing too much.
They are risking the danger of ‘cash today, poverty tomorrow.’
There is also a ‘black hole’ on guidance and advice needs that to be plugged, says the body in a report published today: ‘Five years on: future-proofing the freedoms.’
The ABI is calling for further reforms and a new Retirement Commission to ensure the long-term sustainability of the Pension Freedoms.
So far over £30bn has been accessed from pension pots, with latest figures showing that, in 2018/9 over 350,000 pension pots were fully withdrawn.
Full withdrawals have risen to their highest level since the freedoms were introduced and 40% of withdrawals from pension savings were at an annual rate of 8% and over, which is not sustainable, says the ABI.
The ABI said: “There are concerns that if the current rate at which many people are typically withdrawing cash from their pension pots continues then future pensioners will be at risk of running out of money in retirement.”
Yvonne Braun, the ABI’s director of Policy, Long-Term Savings and Protection, said: “This report highlights some warning signs. We urge Government and regulators, working with the industry, to act on our recommendations, to deliver the changes needed to improve the outcomes for present and future retirees.”
The report recommends a number of steps including bridging the advice gaps, compelling schemes to give mandatory risk warnings if people ask for transfers out of final salary schemes, later life financial reviews and banning unregulated investments.
The Pension Freedoms were introduced in April 2015 by then Chancellor George Osborne and gave people the ability to withdraw all or part of their pension pot from age 55.
However, the ABI is now concerned that too many people are “making complex and vital retirement decisions” without help. According to FCA data in 2018/19 nearly half of people who accessed their pension pots did so without regulated advice or guidance.
The report suggests more safeguards and support to protect consumers, including enabling pension providers to give more help to customers without “crossing the boundary” to regulated advice and a stronger 'nudge' to pension savers towards guidance.
Recommendations include asking the regulators to use greater flexibilities post-Brexit to adapt rules on guidance and advice to achieve a ‘step change’ in the support available to customers.
The ABI also wants the DWP to require defined benefit pension schemes to send scheme members asking to transfer their pension to a defined contribution scheme a letter warning of the risks and for the Money and Pensions Service to develop a later-life review to help people plan during their retirement.