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Blog: Pension drawdown could lead to loss of retirement income, warns FCA

A report published by the Financial Conduct Authority (FCA) has warned that savers could be sacrificing up to 37% of their retirement income by investing in and drawing down from cash, rather than a mixture of asset classes.

Following new pension freedoms introduced in April 2015 for the over 55s, it is estimated that 1.5m pension pots had been accessed in this way, as of September 2017.

However, the FCA has warned that more guidance is needed to help consumers understand their options and make the most of their savings. Of the people not taking advice on drawdown, the majority (more than 60%) were not sure, or only had a broad idea, of where their money was invested. One third were holding funds entirely in cash.

The regulator is proposing that pension providers should send special ‘wake-up’ packs to savers when they reach the age of 50 to explain the various options and risks.

Christopher Woolard, the FCA’s executive director of Strategy and Competition, commented: “We know the choices introduced by the pension freedoms have been popular with many consumers. However, they’re now required to make more complicated decisions than ever before and many people need support when making those choices.”

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