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LV= calls for pension wise to be the default option at retirement

Insurer responds to FCA Terms of Reference Retirement Outcomes Review

In its response to the FCA Terms of Reference Retirement Outcomes Review , LV= is calling for the regulator to make it compulsory for pension providers to request consumers sign a form to say they have used Pension Wise, or actively declined it, if they are not taking regulated financial advice before accessing their pension income.

In addition, LV= has also stated that providers should be compelled to annually inform customers over 55 who are able to access their pension each year that they have the option to switch provider and may get a better deal if they do so, signposting them to Pension Wise for more support. The insurer believes that once consumers have taken their 25 per cent lump sum cash at age 55, their existing provider then manages to “internal vest” the customer’s remaining pension sum, rather than encourage them to shop around and get the best deal and most appropriate product.

Philip Brown, Head of Policy, LV= Life and Pensions said: “It is both unfortunate and disappointing that consumer switching has decreased since the introduction of the pension freedoms. The reforms have opened up options to people but it’s vital that they make the right decisions and get the most from their money. We believe guidance should be compulsory and that customers should actively engage with Pension Wise before they can access their pension income. Making it compulsory for pension providers to ask the question will go some way to signposting Pension Wise as a source of guidance.

“Similarly customers should be encouraged to shop around. Compelling providers to annually inform customers over 55 years that they have the option to switch provider – and may get a better deal if they do so – will highlight there are options available. We believe this initiative, coupled with better awareness of Pension Wise and the FAMR recommendations, would encourage greater consumer switching.”

LV= research has found:

  • As an estimate, nearly half a million [1] people a year retire each year without taking financial advice.
  • Of those within five years of retirement, four in ten (41%) don’t plan to take any advice or guidance at all.
  • Only one in five (21%) will take regulated financial advice, while just 14% will use Pension Wise – a similar percentage to those who will speak to friends and family (13%) or their existing pension provider (16%).
  • Nearly a quarter (22%) said they wouldn’t take advice because free guidance is sufficient, highlighting the need for this guidance to be sufficiently high quality and impartial [2]
  • Yet typically someone who takes advice and shops around for an annuity receives a 23% increase in retirement income [3]

Notes to editors:

[1] According to ONS 2012 data, 600,000 people retire in the UK each year. Opinium December 2015 consumer research showed 78% of UK people over 55 who have not yet retired do not plan to take financial advice equating to 468,000 people.

[2] Opinium March 2016 research:1,572 online interviews with UK adults aged 50 and over, weighted to reflect a nationally representative audience.

[3] 80% of people shopping around for an annuity could have got a better deal (source FCA – Feb 2014) and there is an average 23% difference between worst and best annuity quote (analysis of MAS survey Apr 2015).

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