Consumers trust banks more than pension products

Consumer trust in pensions is lower than in banks and energy companies, according to a survey raising fresh issues for the UK’s growing retirement savings gap.

A survey by consumer group Which? found less than a quarter of consumers — 23 per cent — said they trusted long-term financial products, such as pensions.

This was lower than trust in day-to-day banking, at 40 per cent, and energy companies at 30 per cent, according to the Which? survey.

The survey results echoed the findings of a recent probe by the City regulator, which found that general mis-trust in pensions was driving some potentially unwise financial decisions by the over-55s.

“We’ve found that trust in longer-term financial products — such as pensions — is worryingly low and that consumers are not getting the information they need to make good retirement income decisions,” said Gareth Shaw, Which? money expert.

“This lack of trust combined with a pension ‘knowledge gap’, leaves consumers disengaged and lacking detailed knowledge about the pension options available to them.”

The Which? survey comes two years after big reforms gave the over-55s full freedom to access pension savings they had built up over their working lives as they wished, with no requirement to turn the fund into a secure retirement income.

Since the pension freedoms in April 2015, more than £10bn has been withdrawn from defined contribution pensions by over-55s, who now have much greater choice over how they will spend or invest their retirement pots.

For its study, Which? surveyed 255 over-55s who had accessed their pension pots since April 2015. The research found that many of these savers became daunted and confused when it came to making a decision about what to do with their retirement savings, leading to inertia in some cases.

Less than half of consumers who took part in the survey who had purchased a retirement-income product from their existing provider said they stuck with them because it was the most convenient option.

Which? also found that because trust was so low in long-term financial products consumers felt there was little to be gained, and much to be risked, by switching providers to get a better deal.

“The FCA now needs to ensure that action is taken to help consumers make the right retirement choices,” said Mr Shaw.

“The annuity market failed pensioners in the past, so the FCA must now ensure that similar mistakes are not made with income drawdown products.”

The FCA study, published last month, found that more than half (52 per cent) of pension pots that had been fully cashed-in since pension freedoms were transferred into other savings or investments, such as bank accounts.

“We are concerned that consumers motivated by mistrust in pensions may be making uninformed decisions that result in paying more tax than they would have paid otherwise, for example, by withdrawing the money over a longer period of time, or missing out on the benefits of staying invested for longer,” the FCA’s report said.

The FCA is considering a range of measures to boost competition in the retirement income market, and to help consumers make better choices, if they are acting without the help of an independent financial adviser.

“There is a fairly widespread entrenched mistrust of pensions and this causes investors to act in ways which can be contrary to the long-term best interests both of themselves as individuals and of society more generally,” said Tom McPhail, head of policy with Hargreaves Lansdown, the asset managers.

“Politicians, regulators and the pensions industry are jointly responsible for this state of affairs, and all have to take responsibility for rebuilding trust in the benefits and security of our long-term savings system.”

An FCA consultation on the findings of its retirement income market study closes on September 15.

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