Pension savers need to engage with their retirement options far earlier than is currently normal to ensure they save enough through their lifetime, according to a report from the Association of British Insurers (ABI).
The report outlines a five-point plan to boost engagement with pensions, including the idea of a mid-life financial MOT.
The ABI said the report was fuelled by the fact that more than half of fully withdrawn pension pots are not spent but moved into other savings and investments which result in people paying too much tax and missing out on compound investment growth.
The ABI’s five-point plan has been designed to help savers understand their options, identify retirement goals and communicate how to achieve them.
Five interventions
- Tailored and phased customer communications throughout a saver’s life
- Creating the mid-life MOT
- Prompting more people to use guidance
- Making the retirement risk warnings fit for purpose
- Improvements to communications once someone has retired
Elsewhere in the report, the ABI recommended the government and regulators should make it easier for firms to communicate with customers by simplifying rules on annual statements and “aligning the data” that providers give their customers in all types of regulated communications.
It added: “The industry needs to develop simpler communications that prompt people to use guidance, based on new principles for targeted, phased customer communications and for prompting more people to use guidance, including through participation in pilots
“The government, industry and guidance bodies need to work together to implement these steps, including by developing rules of thumb that are not personal recommendations.”
ABI head of retirement policy Rob Yuille said: “Pension freedoms put more power into the hands of consumers, but this flexibility also increased the complexity and risks that consumers face.
“Our recommendations are for interventions that will transform the way people interact with their pension pots and help people navigate their choices.
“We’re calling on a number of stakeholders today to help us to deliver the practical steps needed to make these interventions happen.”
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