The regulator is concerned about low levels of engagement with pensions and the fact that most people aren't equipped to make confident decisions about their retirement.
Here we explain what these decisions involve, and how the regulator is planning to provide more help with them.
Why more pension support is needed
However, research by the FCA shows that 75% of over-45s do not have a clear plan for how to take money from their pension or did not know they had to make a choice. Less than one in 10 (9%) adults have taken full regulated advice in the past 12 months.
Sarah Pritchard, executive director of consumers, competition and international at the FCA, said: ‘We want people to have access to the help, guidance and advice that they need, at a cost they can afford, when they need it, so that they can make informed decisions.
‘We know people find pensions particularly difficult to understand, so we are deliberately starting with this to help consumers with their pension decisions’.
Find out more:What could the extra support look like?
The FCA wants to address the gap between bespoke financial advice, where you receive personal recommendations about what to do with your money, and guidance, where you get more general information about your options (for example, from the government-backed MoneyHelper service).
It has launched a consultation setting out its proposals for free 'targeted support', which would allow firms to provide support to consumers in different scenarios - for example, where someone is uncertain about how to take a retirement income.
Firms would be allowed to provide a bespoke suggestion to specific groups of consumers who share the same characteristics - rather than being based on an individual's exact circumstances as is the case with full financial advice.
The FCA is seeking responses to the consultation by mid-February 2025. It will then consult in summer 2025 on the rules that would create a new framework.
The decisions you need to make at retirement
If you have a defined contribution pension, you'll need to consider how to turn these savings into an income to fund your retirement.
You can take up to 25% of your pot tax-free from the age of 55 (rising to 57 in 2028), and then access the rest of the money using any combination of the following:
Buy an annuity
How much you get is determined by the value of savings you want to exchange, your health and the rate offered by the annuity provider you choose.
The certainty that annuities offer is their main selling point, but once you've arranged an annuity, you can’t alter your level of income or switch to another provider.
If you take out an annuity as a result of using the service from HUB Financial Solutions, Which? will earn a commission to help fund our not-for-profit mission.Use pension drawdown
Flexibility is the big selling point, as drawdown allows you to tailor your income to match your circumstances. But it also comes with risks.
Take out too much, too soon and you could run out of money. Plus, the value of your pot could take a hit if your investments underperform.
Take lump sums
You could also choose to cash in your entire pension in one go.
The first 25% will be tax-free and the rest will be taxed at your highest tax rate (by adding it to the rest of your income).
Where to get help with your pensions
However, cost is often a barrier. Unbiased, the adviser directory, estimates that at-retirement advice on a pension pot worth £250,000 would incur a fee of £3,000 on average. Consolidating pots worth £500,000 would cost around £5,000.
If you do opt to pay for financial advice, comparison sites such as Unbiased and VouchedFor can help you shop around for quotes from advisers, but make sure they’re regulated and properly qualified.
Remember that if you’re 50 or over and have a DC pension you can get free guidance from Pension Wise, the government-backed service run by MoneyHelper.
Unlike advice, this offers general rather than personalised information, and consists of hour-long face-to-face, telephone or online appointments.
Find out more:Which? Limited is registered in England and Wales to 2 Marylebone Road, London NW1 4DF, company number 00677665 and is an Introducer Appointed Representative (FRN 610689) of the following:
1. Inspop.com Ltd for the introduction of non-investment motor, home, travel and pet insurance, who are authorised and regulated by the Financial Conduct Authority (FCA) to provide advice and arrange non-investment motor, home, travel and pet insurance products (FRN310635). Inspop.com Ltd is authorised and regulated by the Financial Conduct Authority (FCA) to provide advice and arrange non-investment motor, home, travel and pet insurance products (FRN310635) and is registered in England and Wales to Greyfriars House, Greyfriars Road, Cardiff, South Wales, CF10 3AL, company number 03857130. Confused.com is a trading name of Inspop.com Ltd.
2. LifeSearch Partners Limited (FRN656479), for the introduction of Pure Protection Contracts and Private Health Insurance, who are authorised and regulated by the FCA to provide advice and arrange Pure Protection Contracts and Private Health Insurance Contracts. LifeSearch Partners Ltd is registered in England and Wales to 3000a Parkway, Whiteley, Hampshire, PO15 7FX, company number 03412386.
3. HUB Financial Solutions, for the introduction of equity release advice, who are authorised and regulated by the Financial Conduct Authority (‘FCA’) to provide advice and guidance on financial products for those who have retired or are approaching retirement (FCA Firm Reference Number: 455713). HUB Financial Solutions is registered in England and Wales to Enterprise House, Bancroft Road, Reigate, Surrey RH12 7RP, company number 05125701.
4. Alan Boswell Insurance Brokers Ltd (FRN 301), for the introduction of non-investment landlord insurances, who are authorised and regulated by the Financial Conduct Authority to provide advice and arrange insurance contracts. Alan Boswell insurance brokers Ltd is registered in England at Prospect House, Rouen Rd, Norwich NR1 1RE, company number 02591252.
Other financial services:
Mortgage service provided by London & Country Mortgages (L&C), Unit 26 (2.06), Newark Works, 2 Foundry Lane, Bath BA2 3GZ. London & Country are authorised and regulated by the Financial Conduct Authority (registered number: 143002). The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage.
We do not make, nor do we seek to make, any recommendations or personalised advice on financial products or services that are regulated by the FCA, as we’re not regulated or authorised by the FCA to advise you in this way. In some cases, however, we have included links to regulated brands or providers with whom we have a commercial relationship and, if you choose to, you can buy a product from our commercial partners.
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source https://www.which.co.uk/news/article/why-making-decisions-about-your-pensions-could-soon-become-easier-aH3NC4v6T3NE