'I’m against gambling': FCA hears why people hold pensions in cash

The Financial Conduct Authority (FCA) has published the final report of its retirement outcomes review, which examines consumer engagement with the pension freedoms and retirement providers.

Background

The Financial Conduct Authority (FCA) launched its retirement outcomes review (ROR) in 2016 in a bid to examine how consumers were engaging with the reformed post-2015 retirement landscape. 

The review mainly explores the interaction between consumers who do not take regulated financial advice 'on the basis that those taking regulated financial advice receive support already.'

However, because regulated advice is not affordable for everyone, the ROR did set out to look at consumers seeking guidance from providers or third parties. 

The slides ahead chart the regulator's key conclusions, as well as some of the extracts from qualitative interviews with consumers. 

 

Background

The Financial Conduct Authority (FCA) launched its retirement outcomes review (ROR) in 2016 in a bid to examine how consumers were engaging with the reformed post-2015 retirement landscape. 

The review mainly explores the interaction between consumers who do not take regulated financial advice 'on the basis that those taking regulated financial advice receive support already.'

However, because regulated advice is not affordable for everyone, the ROR did set out to look at consumers seeking guidance from providers or third parties. 

The slides ahead chart the regulator's key conclusions, as well as some of the extracts from qualitative interviews with consumers. 

 

Key conclusions:

The FCA found:

  • Nearly all (94%) those who fully withdrew had other sources of retirement income.
  • Overall 33% of non-advised drawdown consumers are wholly holding cash.
  • Twice as many pots have been used for drawdown than to buy an annuity.
  • Around one in three consumers who have gone into drawdown recently are unaware of where their money was invested.
  • Some providers were 'defaulting' consumers into cash or cash-like assets.
  • Weak competitive pressure and low levels of switching.
  • Consumers might pay too much in charges.
  • Drawdown charges can be complex, opaque and hard to compare.
  • Some consumers struggle to fully engage with the information providers give them.
  • There has been no 'significant' product innovation for consumers in response to the pension freedoms.

The FCA also commissioned a survey of consumers not taking advice which asked 1,005 consumers about their engagement with the retirement market. 

The first quote is below. More can be found by clicking on.

Participant aged 60-64; working; £100k+ pot; non-SIPP, has a separate DC pension

I have no confidence in the pension industry anyway, I have no confidence in the way it’s performed in my lifetime, and that was one of the reasons that I wanted to take my money.

Because with the interest rates as they are, and I’ve lost such a lot of capital over the years, I didn’t see that there was any great benefit in keeping my money in there and I’d rather have it to spend.

Interviewer: Did you need the money at the time or was it just more of…?

Not at all, no, no. In fact, I’ve got significant savings and the money’s just added to my savings and not getting any interest, but I felt that if I wanted to – I, I felt I’d rather have it than they have it.

Aged 65+; retired; £10-50k pot; SIPP only provider, has a separate DC pension

I talk to my friends who have got the [pension provider] accounts as well, … one of them invests quite a lot of money. So, in, in my view quite a lot of is 10, 20,000. He’ll invest 20,000 for about six months and see how it grows…His pension’s far bigger than mine, so he can afford to say lose ten or 20,000 on a high stakes investment. I personally won’t do that I’m against gambling, always have been. I like to know that things are safe, things are in place.

Aged 60-64; working; £100k+ pension pot; non-SIPP, has a separate DC pension

No, I don’t care. I don’t know. As long as it doesn’t lose money, I will be satisfied. 

Aged 65+; retired; £10-50k pension pot; non-SIPP, has DB pension

I don’t have the details and I’m not too bothered about the details. Because I’m getting more money than I would if I’d stuck it in the bank, if I drew the whole lot out.

 

Aged 65+; retired; £10-50k pension pot; non-SIPP, has no separate DB or DC pension

I’ve no doubt that they probably advised me where it is and what it, you know, who it’s with, but, off the top of my head, I couldn’t give you an honest answer and say, yeah, I was aware of just where it is. There was a discussion, but what, what was said, I’m, I’m fairly sure I was quite confident in, you know, in leaving it in their hands.

Aged 60-64; retired; £100k+ pension pot; non-SIPP, has a separate DB pension 

My assumption was that it would be invested, I’m assuming the stock market. I don’t know what, I don’t know why I’m thinking that but it seemed logical to and I don’t know where else it would be invested in but that’s what I had in my head.

Aged 60-64; working; £100k+ pension pot; non-SIPP, has a separate DC pension

Interviewer: Would you be interested in getting more information about how the fund or the product is performing?

Participant: No.

Interviewer: Is there a reason why you’re not interested?

Participant: Yes, 'cause I’m not interested in financial things. I, as I say, I have no confidence with the way that everything’s performed and I’ve lost the capital on investments over the years, so that’s one of the reasons. I don’t have any confidence in the financial services industry. That’s the truth of it. And it’s my money that I’ve put in and if I could have taken it all out, I’d rather have it all out under the bed than with [pension provider]. And if I could take it tax free, I would have done.

Aged 55-59; caring; £50-100k pot; SIPP, has a separate DB pension

So [pension provider] sent a lot of information and particularly about, a kind of risk questionnaire to see how what risk you were prepared to accept and recommended different sums and bonds and things to put your money in. So, in fact I think, yeah, they had various examples of, of people…this person will accept a low risk or a medium risk and…what kind of options there were. And I basically, went for, went for one of those.

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