New rules to help retirees unsure what to do with their pensions

Regulations meant to stop pensioners cashing in their entire pots and ignoring better options.

Savers are urged to look closely at their pension provider’s offerings when they retire, as new regulations to help them will come into force next month.

From 1 February, retirees entering drawdown – where your pension stays invested but you make withdrawals for income – without financial advice should be offered four objectives that will dictate the fund their money is put in, known as an ‘investment pathway’.

The four objectives are:

• I have no plans to touch my money within the next five years
• I plan to set up a guaranteed income (annuity) within the next five years
• I plan to start taking a long-term income within the next five years
• I plan to take my money within the next five years

Pension providers will need to offer a default investment fund for each of the objectives and outline the strategy and the fees.

It is part of efforts by the Financial Conduct Authority regulator to ensure retirees make the best choices with their money when retiring.

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The regulator’s research found that one in three savers who choose income drawdown without taking advice were holding all their money in cash and missing out on investment growth.

Jonathan Watts-Lay, director of financial education provider Wealth at Work, says savers must compare different providers funds and fees before relying on what their current scheme is offering.

He says: “One of the big problems we know from history is pre-2015 when most people only had the choice of buying an annuity, as opposed to some form of drawdown, they ended up buying it from their existing pension provider even though they could get a better deal elsewhere.

“Many people will have multiple pensions, potentially all being defaulted into different funds. 

“As all providers will be offering different investment pathways and different pricing, this may lead to a far from joined up strategy and cost far more than it needs to.”

Last week a study by pension provider The People’s Pension found three-quarters of retirees were spending money at a rate that would have exhausted it by their mid-80s at most.

Interactive investor will also offer investment pathways to retirees when they can access their pension pots from age 55.

Becky O’Connor, head of pensions and savings for interactive investor, says the initiative should “coax people out of cash” and help those daunted by risk and investment choice but warns it may not be suitable for everyone.

She adds that someone in their fifties may not be sure of their retirement strategy yet so these options may still cause confusion and hesitation.