Pension Freedoms are the right course to follow says FCA’s Bailey

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Posted on: 27th September 2018

FCA chief executive Andrew Bailey states that the pension freedoms are the approach in which individuals should be taking when it comes to the increasing difficulties of retirement. Recently, Bailey spoke about the watchdog’s view on pensions. In his speech, he argues the context in which the choices made by individuals regarding retirement is becoming increasingly nuanced.

The Patterns of Pension Freedoms

According to Bailey, basic patterns are yet to change. Individuals to this day move from being net debtors to net asset owners across their working lives. They then draw down those assets in retirement. This pattern seems to be making no development. However, he makes a point regarding the contours of the pattern. These have, in fact, differed over time. Bailey argues further that there is now even less certainty about how those contours will take shape as generations and individuals age.

Bailey adds, “Moreover, the increase in uncertainty poses very clear challenges. Not just for the provision of pensions, but also for the provision of advice to individuals on the decisions that go with pensions. There is no doubt a tension, even a contradiction, between the degree of uncertainty and the apparent certainty embedded in the design of financial instruments.”

Questioning Pension Freedoms

In the speech, Bailey questions if pension freedoms are the right approach. He says, “The freedoms remain the right course to follow but supplemented by an expansion in the scale and scope of auto-enrolment, so it isn’t a total free-for-all.”

He continues, “My reason for taking this view is that while the contours of the lifetime model will always change, it is unlikely that we will turn the clock back in the foreseeable future, and greater freedom of choice over decumulation – when and by how much and in what form pensions are put into payment – makes a great deal of sense in terms of the shifts in and uncertainty around the lifetime model.”

Making the Right Choice

However, Bailey points out that people should remember that the responsibility for a “very complex area of decision-making” has transferred to individuals. He says, “We need to do all we can to help people make those decisions. And that is where the FCA, among others, comes in.”

Finally, Bailey reiterates the FCA opinion that a charge cap on drawdown is not to be considered just now. However, he intends to review charges in the light of how they develop as part of its work from the retirement outcomes review.

Finally, Bailey adds, “If we find problems with charges, then capping will be on the table as a response.”

Talk to Haven IFA

Let Haven help you through the complexities of choices that pension freedoms provide. We believe that it has never been more important to seek independent financial advice for your retirement options. Advice from our independent advisers can ensure that you make informed decisions in regard to all aspects of savings and investments. Get in touch to find out more about how we can help.