Today’s investment pathways consultation launch has won support from many, including Steve Webb, director of policy at Royal London, who said: “The big outstanding challenge around pension freedoms is not people with large pots blowing the lot on a sports car, but is about more inexperienced investors with smaller pots leaving them invested in cash for long periods of time or withdrawing them altogether.
“These FCA rules are a sensible response to the risk of savers sleepwalking into seeing their hard-earned savings eroded by sitting in low-return cash investments.
“But there is still a problem where people cash out the whole pot and transfer it into a cash ISA or current account.
“It is clear that reckless caution, not Lamborghinis, is the big outstanding challenge with pension freedoms.”
Jon Greer, head of retirement policy at Quilter, added: “Recent data from HMRC has shown that pension freedoms has not led to the disastrous over-spending predicted by some when it was brought in.
“However, the FCA Retirement Outcomes Review reminds us that the risks to people’s prosperity in retirement has not dissipated as pension freedoms has changed the game of retirement planning, which many people aren’t prepared or even aware they are going to partake in.”
Rob Yuille, head of retirement policy at the Association of British Insurers (ABI) said: “It’s crucial that the many thousands of people entering drawdown each year are able to do so with appropriate levels of support and information.
“We agree with the FCA’s recommendation to introduce investment pathways. Improving the frequency and content of retirement communications is a pragmatic, logical next step.
“Increasing information about fees and charges is something the industry has been working on for some time and we support the FCA’s proposals.
“In future, levels of transparency will increase even further thanks to the work we have been leading on the creation of pensions dashboards and a drawdown comparison tool.”
Steven Cameron, pensions director at Aegon, stressed the importance of proper advice.
He said: “The pension freedoms have proven hugely popular, with over one million individuals having used them to support more flexible retirements.
“However, those going it alone without an adviser run the risk of picking the wrong type of retirement product, investing in an inappropriate fund or defaulting into cash.
“Starting to ‘wake people up’ to their retirement options through concise communications from age 50 is good news.
“There are real risks that those not seeking advice will invest in a fund which is inappropriate for their retirement objectives.
“Asking customers entering drawdown to pick from one of four statements around their intentions for the next five years and then setting out a broadly suitable ‘investment pathway’ will be of help to some and will reduce the number defaulting into cash.
“But the pension freedoms by their very nature mean individuals have a highly personalised retirement journey.
“Crucially, we mustn’t give customers the false impression that improved communications or simplified investment pathways replace the benefits of advice.
“It’s only with professional advice that an individual’s personal circumstances will be fully explored to optimise retirement decisions.”
Andrew Tully, technical director, Canada Life, added: “Four years ago, freedom and choice turned the retirement savings market on its head.
“Given the pace of change, it is hardly surprising there would be a number of issues emerging which would require regulatory intervention.
“The FCA has found consumers entrenched with their holding provider, seemingly unwilling, or without the knowledge, to switch their provider.
“Weak competitive pressure and low levels of engagement are particularly acute in the non-advised drawdown market and the regulator is rightly focussing on a package of measures to help address this.
“To illustrate the point, 94% of consumers who access their pots without taking financial advice accept the drawdown option offered by their pension provider, compared to only 35% of advised customers.
“This shows the huge benefit people receive from seeking independent advice.”