A committee of MPs has recommended that pension providers set out a more specific pathway near retirement for investments held within pensions.
There would continue to be a 0.75% cap on management fees under this new arrangement close to retirement, as there is during the life of the pension currently. However, the more "automatic" nature of the proposed arrangement has been criticised by pension providers who say it will result in a lower level of engagement.
Over 55s have more freedom than ever when it comes to managing their retirement pots, with a correspondingly high level of responsibility. The days of almost all retirees buying an annuity are now well and truly gone.
According to Jon Greer of Old Mutual Wealth:
“Drawdown requires engagement from savers and shouldn’t be a passive choice,” he said.
“According to the Financial Conduct Authority’s recent review of DIY pension investors, 37pc of drawdown sales are made without advice.
"It is clear that this is a considerable issue and needs to be addressed. But a solution needs to focus on engagement, which a default fundamentally goes against.”
Steve Webb of Royal London agrees, stating that the proposed new approach could: "destroy the spirit of the pension freedoms”.
He also raised the issue that providers do not have the whole picture of a client's assets and financial situation, making the selection of the appropriate option for that individual difficult.
MP Frank Field, the chairman of the committee, asserts however that he beilieves that individuals would benefit from the proposals:
"They would be armed with a new range of clear, transparent information in making their choices."
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The value of investments and income from them may go down as well as up and you may not get back the original amount invested.
A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.
MPs' proposals would 'destroy spirit of pension freedoms'