DEBATE: In light of the FCA’s retirement outcomes review, is pension drawdown working?

In light of the FCA’s retirement outcomes review, is pension drawdown working?

Alistair Wilson, head of retail platform strategy at Zurich Insurance Group, says YES.

Drawdown has given hundreds of thousands of retirees greater freedom and flexibility in retirement.

Before the pension reforms, most people reaching retirement were forced to buy an annuity, which many found to be poor value and highly restrictive.

Now, people can dip into their pension when they like, taking however much they choose, while leaving the rest invested. It has transformed the retirement landscape, with twice as many people choosing drawdown over an annuity.

Drawdown does require people to make complex investment and withdrawal decisions throughout retirement, meaning that financial advice is crucial. The FCA’s proposed changes will help drawdown be even more successful, reducing the risk of people draining their pots too soon, and are a positive step. But even as it stands, our recent report found that eight in 10 people who have put their pension in drawdown would do the same again given the chance.

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Baroness Altmann, former minister of state for pensions, says NO.

Too many pension savers are not being well served by post-pension freedom drawdown products.

The old regime saw most people just buying their pension provider’s annuity, and paying too much for an unsuitable product. But the Financial Conduct Authority finds the new system has similar problems.

Nearly all (94 per cent) unadvised customers just buy their provider’s ordinary drawdown product, and one third hold their fund in cash. With a 20-year or longer time horizon, this is not optimal.

Pension savers do not usually shop around. With drawdown charges between 0.4 and 1.6 per cent, plus other costs on top, many will lose out significantly over time. Drawdown customers will also be less financially savvy and less well-off.

Pension freedoms have the potential to revolutionise pension outcomes, but providers have not radically redesigned drawdown for the new landscape and customer profile. So far, drawdown is stuck in the past – it needs to move on.

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