"Pension freedom reforms represented the biggest shake-up of the UK’s savings and investment industry in a generation. Retirement plans have changed dramatically, with most people now choosing flexible retirement funding, instead of being confined to a rigid regular income from an annuity.
"The reforms were in part a response to a time of low interest rates, which suppressed annuity rates in the middle of a decade that had been kind to investors. It meant that those reaching retirement were being forced to take a meagre annuity yield and watch on longingly as investors enjoyed the fruits of a stock market boom.
"It encouraged a trend in retirement that had already started; retirement no longer means simply winding down and adopting a gentler pace of life. Many people want to travel, develop new hobbies or explore interests which they haven’t had time to indulge during their working lives. And some people choose to phase into retirement, gradually reducing their hours or moving into work they find more rewarding but which may be lower paid. Pension freedoms have enabled some people to build an income plan that helps them fulfil their own lifestyle choices, instead of making their lifestyle fit around their annual annuity income.
"But despite the success of the reforms, they have not been without their shortcomings. The FCA has found that non-advised customers in particular are at risk of making choices that may not serve them well in the long-run. Around one in three non-advised pots are invested wholly in cash, which over time will be eaten away by inflation. And 94% of non-advised customers have taken the drawdown plan offered by their existing provider, whereas advised customers are much more likely to shop around for the best pension company to meet their needs.
"Looking forward, it can be argued that pension freedoms are still in their infancy. Five years may feel a long time in the ministerial merry-go round of Westminster, especially since we have had three Prime Ministers and as many elections during the short time that freedoms have been in force. But it is vital to continue to monitor retirement behaviours closely to ensure freedoms work for customers. For instance, stock markets have delivered broadly strong returns over the last decade, rewarding retirees that have kept their pot invested in flexi-access drawdown. But if global investment markets were to fall substantially - and history tells us they surely will at some point - retirees will need to be in properly balanced portfolios with appropriate risk controls in place to avoid drastic losses that will be compounded by income withdrawals.
"Similarly, although a lot of work has been done to protect vulnerable customers and restrict the prevalence of pension scams, they will not go away. Steps to ban cold calling and increase awareness of the risk of scams are welcome but tackling pension scams will be a constant battle that we need to keep fighting.
"A clause in the Pensions Schemes Bill currently going through Parliament paves the way to enable schemes to block a transfer where they suspect it is an attempt to defraud the customer. This is an important weapon for the pensions industry in tackling scams, however it is taking time to implement and we will only get the necessary regulation once the Pension Bill becomes an act. It is crucial that these additional protections continue to be re-enforced by ongoing awareness campaigns to ensure that customers are alert to the signs of a fraud."