Proof pension savers are like caged canaries

Others will stay put, missing out on the exercise and the potential benefits of spreading their wings that they are being offered.

Others will fly straight into the closed window and hurt themselves or, if their owners are a bit dim, fly straight out of the window and freeze to death or find themselves preyed upon by fat cats.

The Association of British Insurers statistics, published earlier this week, shows pension savers behaving similarly to caged canaries allowed to fly free after years behind bars.

A grand total of £4.7bn has been withdrawn under the new pension freedoms since April.

The ABI found smaller pots are generally being taken as cash, while larger pots are still being used to access retirement income, with £5bn invested to buy nearly 84,500 regular income products, either annuities or income drawdown products.

For funds being invested £2.85bn has been invested in 43,800 income drawdown products, with an average fund of almost £65,000.

About £2.17bn has been invested in around 40,600 annuities, making the average fund invested nearly £53,300.

The ABI’s data showed six out of 10 people are changing provider when buying an income drawdown policy - so four out of 10 canaries stay in the cage.

This compares to 40 per cent of customers who bought an annuity.

FTAdviser exclusively revealed the DWP is concerned about savers still failing to shop around for the best retirement income.

Speaking at a Westminster Employment Forum seminar yesterday (5 November), Ronan O’Connor, deputy director for private pensions policy for the Department for Work and Pensions, responded to a question about whether government is concerned about savers failing to shop around for drawdown by saying: “Yes, we are concerned about that”.

He said: “It is true that there were many problems with the annuity market. There were many problems with the situation before pension freedoms, some of them were shopping around, some of them were the kind of one time nature of the decisions, some of them were the perception of the value and not of the annuity market but the problems.

“The issues that we face with any sort of decumulation decision that existed pre the pension freedoms now exist so yes we are concerned about that [people failing to shop around for drawdown] which is why I think we need to be really clear on the role of guidance and how far we can take guidance but also the importance of advice and getting support.”

I think government and the regulators need to be concerned not just about the canaries who stick with what they have always known but also about those that are smashing into glass or proving a feast for predators.

Freedom sounds a fabulous thing but it has given savers who were clueless in the first place the opportunity to stick with the status quo or – even more worryingly – head straight into the arms of scammers.

Government and the regulator need to realise it is not enough to just open the door - some canaries need encouragement to leave their cage.

I am not usually one for calling for yet more rules but in this case more needs to be done to make providers produce statements that show how much extra income could be generated by shopping around for an annuity/drawdown.

I think pension providers should also have been forced to call savers and state how much extra could be generated by speaking to a financial adviser and striking a deal elsewhere - because sometimes paper alone is not enough.

emma.hughes@ft.com