NEST responds to FCA consultation with 5 million reasons for change

NEST (National Employment Savings Trust) has today responded to the FCA’s Retirement Outcomes Review arguing that its five million members are particularly vulnerable to the risks highlighted in the FCA’s interim report. The master trust supports the FCA’s findings that default pathways, independent governance and measures to help customers shop around are needed to avoid the risk of consumer detriment.

Commenting on the response, Gavin Perera-Betts, NEST Chief Customer Officer, said:

“We agree with the FCA’s conclusion that the retirement market does not work for many savers, particularly those on small to average incomes, who don’t tend to seek advice, shop around or feel confident making financial decisions. That means that the current advice market just isn’t appropriate for many of our membership. 

“We believe our members risk paying more in charges and taxes, missing out on investment growth and most worryingly, either running out of money too soon or underspending their pots without the right support structures in place. With over 5 million members, that’s over 5 million reasons for change. 

“While we support measures to help savers shop around and compare products, on its own this doesn’t meet the needs of our members. That is why we are calling for governed pathways, which we believe is the most appropriate solution for the majority of our members.”

Referencing research into consumer behaviour, NEST evidenced that the some savers on low to average incomes need a new approach to accessing their pensions in retirement.

1. Some savers may find advice unaffordable or inaccessible
   Many consumers in a piece of research commissioned by State Street and The People’s Pension were reluctant to seek formal advice. Of 80 respondents, 31 spoke to a financial advisor during their decision making journey with only 17 proceeding beyond the free consultation stage. Research has shown that drawdown advice on pots under £100,000 is commercially unviable.
2. Some may have difficulty interpreting financial information and subsequently taking financial decisions
   According to the definitions used in a 2011 Government survey potentially three quarters of the population may struggle to compare financial products and services for the best buy.
3. Some savers aren’t willing to shop around
   ABI analysis shows that at present, 94 per cent of non-advised drawdown sales are made to existing customers.
4. Some struggle to assess risk and uncertainty in relation to retirement income
   Evidence pointing to widespread ‘irrationality’ in savings decisions has led to studies across the field, including into procrastination and commitment devices, choice overload, mental accounting, and choice architecture (including default investment pathways).

Read NEST’s full response to the FCA’s Retirement Outcomes Review.