There has not been much innovation when it comes to retirement income, the Financial Conduct Authority says.
While robo-advice is rapidly expanding in the UK, when it comes to pension plans, there are not many players, a report from the country’s financial regulator found.
The FCA says it would expect the opposite, due to the low-cost of automated wealth services.
“Currently automated advice is more popular in wealth management,” the regulator wrote. “However, it is expected that due to the lower cost and convenience it could become more popular in larger markets, including retirement income.”
The FCA also noted that pension drawdown schemes, where funds are kept in the stock market, is an area of concern and could require intervention.
Major changes to pension schemes since 2015 have allowed many people to take their savings as a lump sum rather than a steady source of income, the FCA said.
“Since the introduction of the pension freedoms, the retirement income market has changed substantially,” said Christopher Woolard, executive director of strategy and competition at the FCA. “We have identified areas where early intervention may be needed either now or further down the track to put the market on the best footing for the future.”
Nearly 72 per cent of people who access their pension pots are under the age of 65, the study found. Many consumers who accessed their pots before retiring put it in a drawdown option and don’t actually shop around for the best choice.
Tim Middleton, technical consultant at The Pensions Management Institute, says it is concerning that so many retirees have not sought professional advice and the government should consider an advice mandate.
“We are moving into an era where an increasing number of people are largely or wholly dependent on Defined Contribution pension arrangements to fund their retirement,” he said. “Given the growing reluctance of members to opt for the security provided by annuitisation, it is crucial that drawdown is controlled prudently if longevity risk is to be managed effectively.”
This article first appeared on RoboAdviceNews.com