Financial watchdogs want retirement savers to be told more about their pensions and a clearer charging structure if they choose pension drawdown.
The Financial Conduct Authority (FCA) looks after the interests of consumers saving into pensions.
The call for change has arisen from a review of pension freedoms introduced by the government in 2015.
The freedoms were aimed at giving retirement savers more options of how to spend their pension cash once they reached the age of 55 years old.
But the watchdogs consider that these freedoms provided disadvantages to pension savers as well as benefits.
Wake up packs
Now, the FCA wants pension firms to send ‘wake up’ packs to savers every five years from the age of 50 until they have spent their pension pots. These packs should be a single page document in clear language outlining the current balance of a pension fund and offering comparison figures for taking the cash in different ways.
The body also wants providers to clearly state their charges in a pounds and pence figure rather than as a percentage.
A hoped-for cap on pension drawdown charges was not included in the review – but the FCA threatened that if providers did not introduce ‘appropriate charges’, then a cap may well follow.
The problems seen as a disadvantage by the FCA is savers taking money from their pensions to hold as cash and two thirds of savers not taking financial advice about how to spend their pensions.
In some cases, the FCA argues that investing pension savings rather than banking the money as cash can give up to 37% more income.
Christopher Woolard, executive director of strategy and competition at the FCA said: “We know that the choices introduced by the pension freedoms have been popular with many consumers.
“However, they’re now required to make more complicated decisions than ever before. Many people need more support when making choices. The measures we have outlined today will help them think about that earlier, create investment pathways to help them with their choices and make costs and charges easier to understand.
“This is an important market that is still relatively new and is continuing to evolve. This is not the end of the work we are doing, and we will continue to keep the market under review as it develops.”