Royal London boss raises fears over pensions freedom
● Concerns raised after FCA says taking pension pots early is now ‘the new norm’
The chief executive of life and pensions group Royal London has raised concerns that people reaching retirement are rushing into “income drawdown” products without taking financial advice.
The comments came as the City regulator recently said that accessing pension pots early has become “the new norm” in the wake of pensions freedom rules introduced in 2015.
According to the Financial Conduct Authority (FCA), almost 72 per cent of pots that have been accessed are by consumers under 65, and most people are choosing to take lump sums rather than a regular income from their retirement savings.
Royal London boss Phil Loney said yesterday: “The data revealed a particular surge in non-advised drawdown sales; we think this is concerning as the best outcome for customers when choosing an income drawofpensioncashwithoutexpert down strategy generally occurs when they take financial advice, as the decisions are complex and can form a significant part of an individual’s retirement income.
“We are pleased that the FCA is looking at this area more closely, and our view is that they should do more to encourage individuals to take impartial financial advice when contemplating income drawdown.”
Hiscommentscameasroyal London, which employs about 1,100 people in Edinburgh and 100 in Glasgow, revealed a 45 per cent jump in new life and pensions business to £6 billion for the six months to 30 June.
The mutual said that individual pensions and drawdown sales surged by 64 per cent to £2.9bn, while group pensions sales were 32 per cent higher at £2.5bn, although this pace of growth is expected to slow in the second half of the year as the process of employees being automatically enrolled into workplace pension schemes nears its final stages.
Alluding to the drawdowns advice since former Chancellor George Osborne ushered in the annuity reforms, Loney told The Scotsman: “There’s nothing like hindsight. But it could have been foreseen. And it’s something to be concerned about.”
He said the level of early drawdowns of pension money without receiving financial advice first had shot up from 5 per cent to 30 per cent today, according to official estimates, in a short period of time.
Overall, the group’s funds under management increased by 6 per cent to £106bn, with Royal London Asset Management attracting gross inflows of £5.1bn.
Loney added: “During 2017 we have consolidated our position as one of the new business leaders in the retail protection, pension and drawdown markets, and as one of the main providers of new workplace pension schemes entering auto-enrolment.
“We continue to invest in our capabilities to increase value for money for customers and to make it easier for their advisers to do business with us.”