It is "unrealistic, uneconomic and unnecessary" to expect those approaching retirement to take regulated financial advice, according to Hargreaves Lansdown.
Advice is expensive and most investors are capable of managing their own savings, with a little help, the fund seller said.
Hargreaves is calling on the pensions industry to re-think its approach to pre-retirement planning - because existing processes "aren't working".
It has written to the Treasury, Department for Work and Pensions, Financial Conduct Authority (FCA), Association of British Insurers and National Association of Pension Funds to propose a "fundamental review" of the system.
Hargreaves has set out a five-point plan it believes should be implemented across the sector to improve the options and outcomes for consumers approaching retirement:
1 Start retirement process earlier
The at-retirement process shouldn't be left until the last six months before retirement. Wake-up packs and at-retirement decision making should be started at least five years before retirement, not least because the way that investors plan to draw on their retirement savings should have a direct impact on their pre-retirement investment strategy. This is something for the FCA to take up as the pre-retirement process is governed by their conduct of business rules.
2 Improve investor engagement
Investors need to be engaged with their retirement savings. Ideally this should start from the day they join a pension. It is unrealistic, uneconomic and unnecessary to expect them to take expensive regulated advice. Most investors are quite capable of managing their own money, if given a modicum of support, and simple systems on which to administer their savings.
There is no one-size-fits-all solution to retirement saving; the only solution that works is individual responsibility and engagement. It is up to policymakers and the pensions industry to help investors manage their responsibilities effectively.
3 Make shopping around the default
The starting point for all investors should be that they shop around for a retirement income solution. Unfortunately at present, for too many people, the default option is still to look at their existing insurance company's annuity terms, with shopping around being presented as an after-thought. This is the wrong way round and only by making shopping around the default can we hope to engage investors in wider solutions beyond simply turning all their pension pot into a single life level annuity in one go.
4 Reform Trivial Commutation rules
It is in no one's interests for investors to have to buy an annuity with a pot of only a few thousand pounds. If it were easier to take small Defined Contribution pots as a lump sum then investors could get more control of their savings, the Treasury could get its slice of tax sooner and the pensions industry would be able to deal more efficiently with the remaining larger pension pots.
5 Simplify lifetime allowance (LTA)
It may only be seven years since A day and pensions simplification but we already have myriad layers of lifetime allowance protection and if the Liberal Democrats get their way and reduce the LTA to £1m, then there'll be even more. The Treasury's policy of progressively restricting the permitted level of tax-free pension savings is stifling the savings culture and adding to the world's over-supply of bureaucracy.
Tom McPhail (pictured), head of pensions research at the fund supermarket, said: "We need to reset the policy agenda because the at-retirement processes aren't working. Only a minority of investors are shopping around effectively but many more are being let down by a system which needs a thorough overhaul."
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