Great initiative designed to stop the over 55s raiding their income drawdown pots too soon without getting the correct advice. The new rules have been delayed but they need to be put into place as soon as possible.
The Financial Conduct Authority (FCA) says it is delaying its investment pathways initiative until 1 February 2021, due to the coronavirus epidemic.
The initiative is designed to help over-55s who want to go into income drawdown without financial advice by requiring pension providers to offer a menu of four investment strategies that suit their needs.
As many as 100,000 over 55s go into income drawdown every year without seeking financial advice, according to the FCA.
Almost a third of those following this path between October 2015 and April 2017 had invested their retirement savings wholly in cash.
The FCA has previously expressed concerns that many consumers who do not seek advice ‘sleepwalk’ into income drawdown and hold their retirement savings in investments that do not meet their needs.
This means retirees may not be able to generate the level of income they need or find that they run out of money.
The four pathways outlined by the FCA are for:
- Those who do not plan to touch their money in the next five years
- Those who plan to buy guaranteed income with an annuity in the next five years
- Those planning to take long-term income from their pension within the next five years
- Those planning to cash in their whole pension within the next five years
Pension freedoms were introduced in April 2015 and allow anyone over the age of 55 to take some or all of their pension as a lump sum, with the first 25% paid tax free.