Retirement savers who are accessing their pensions from the age of 55 have been accused of "sleepwalking" into bad financial decisions.
This is the warning given by the Financial Conduct Authority (FCA), which has proposed new measures to help savers make better financial choices about their retirement savings.
Savers can access their pension pots from the age of 55, with the first 25% tax-free and the rest subject to their marginal rate of income tax.
In April 2015, savers were given a greater range of options to choose from after former Chancellor George Osborne introduced ‘pension freedoms'.
While savers' options at retirement have become more flexible, they also became much more complicated - so it's important to understand the details before you make a decision.
What are the FCA's warnings about?
The FCA's report focused specifically on savers who opted for a flexible drawdown product at retirement.
This is a feature offered by some pensions, which allows savers to draw a post-retirement income from the assets held in their pension.
According to the research, one in three consumers who have gone into drawdown recently are unaware of where their money is being invested.
This means many savers could be losing out on retirement income if their investments aren't suitable for their circumstances.
The FCA say pension providers should be required to offer a range of ready-made investment solutions, or ‘investment pathways', to drawdown customers who do not seek professional advice.
What are your other options?
Drawdown is just one of many options for over-55s accessing their pension savings. We've outlined some of the other choices available, but be sure to talk to us about what would best suit you before making any decisions.
Leave it untouched until you retire
Doing this means you can continue to contribute up to £40,000 of your annual earnings towards your pension pot in 2018/19 without paying tax, subject to rules that may apply to high earners.
The first time you take any taxable income from your pension benefits, you'll be subject to the lower money purchase annual allowance of £4,000.
This is the simplest option, and often the best one, unless you need the money for something in particular.
If you have no major overheads and already have enough cash saved in other ways to maintain your quality of life, you might choose to withdraw all of your savings in one go.
In this case, the first 25% of your retirement savings would be free from tax and the remaining 75% would be taxed at your marginal rate of income tax.
Be aware that doing so could nudge you into a higher income tax band and see you paying 40% as a higher-rate taxpayer or 45% as an additional-rate taxpayer.
Take several lump sums
Another option is to take 25% of your pension pot tax-free and leave the other 75% where it is, continuing to grow as an investment in your existing pensions.
Whether you pay income tax on taking several lump sums depends on your total annual income in any financial year and the personal allowance.
Lump sum and an annuity
If the idea of having a fixed annual income for the rest of your life appeals to you, you might choose to withdraw 25% of your pension pot without paying tax and purchase an annuity with the rest.
These usually pay you a fixed annual income until you die, but low rates of inflation mean they have fallen out of favour with retirement savers in recent years.
Mix and match
It's also possible to use a mixture of these pension options, such as using some of your pension pot to buy a flexible income drawdown product and some to purchase an annuity.
This is by far the most complex option, so be sure to seek professional advice.
Talk to us about your pension options at retirement.