The Financial Conduct Authority (FCA) is introducing new protections for savers to help reduce the numbers of those who take cash out of their pension pots without knowing the full long-term implications for their retirement finances.

The move is aimed particularly at those who don’t take independent financial advice, and who could otherwise find their savings inadequate to ensure a comfortable retirement, or inadvertently exceed the drawdown limits and receive a hefty tax bill.

From 1 August 2020, providers will be required to offer consumers a number of investment pathways if they haven’t already received professional advice.

They will need will explain to savers what happens if:   

• They have no plans to touch their money within the next five years
• They plan to use their money to set up an annuity within the next five years
• They plan to start taking their money as a long-term income within the next five years
• They plan to take out all their money within the next five years

Providers will also be required to ensure you put money wholly or mostly into cash only if you have taken an active decision to do so – and not done so by mistake.

Providers will also have to be far more transparent and inform savers of the costs and charges they will pay on their pension pot, expressed in pounds and pence.

Just Group communications director Stephen Lowe describes the move as “the biggest regulatory step since the introduction of the pension freedoms as it gets right to the heart of the problem and should improve the lives of millions”, calling it another “protective blanket” for consumers entering drawdown without taking advice.

He added: “However, these new rules continue to treat the symptoms rather than the cause of the problems many consumers face when accessing their pension savings without advice.

“The Financial Guidance and Claims Act mandated everyone must receive independent and impartial guidance before accessing their pension savings – unless they opt out. The FCA is now tasked with determining the opt-out process and it must ensure that it is an ‘active’ rather than a ‘passive’ decision.

“While many argue this might cause friction for consumers, this is no bad thing as consumers juggle irreversible and complex decisions with their lifetime saving.”

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