Personal Pension  

ABI reveals how people are accessing pension cash

ABI reveals how people are accessing pension cash

Nearly a quarter of a million payments worth £1.8bn were made to customers from pension pots during April and May, according to figures from the Association of British Insurers.

In the same period £1.3bn was put in to buying nearly 22,000 regular income products, with more than half of this going into income drawdown products, rather than annuities.

In 2012, when annuity sales were at their peak, over 90 per cent of the total value of sales were annuities and less than 10 per cent of total sales were income drawdown.

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The data publication coincides with 100 days since the pension reforms came into force, and includes figures from now ex-member Legal and General.

During the first couple of months of freedoms, savers have taken out more than £1bn in 65,000 cash withdrawals from their pension pots, with an average size of £15,500.

These cash lump sum payments were taken via the new uncrystallised funds pension lump sum route.

Savers have taken out £800m worth in payments from income drawdown policies in 170,000 withdrawals.

Meanwhile, £630m was used to buy 11,300 annuities and a further £720m was put into 10,300 income drawdown policies. This compares to nearly £1.2bn a month in sales of annuities at the peak in 2012, when only £100,000 a month was put into income drawdown products.

The average annuity was purchased with £55,750 and the average fund put into drawdown was £69,900.

The data also shows that many customers are shopping around for the best deal, with nearly half (45 per cent of sales) choosing a different provider when buying an annuity and over half (52 per cent of sales) switching when buying an income drawdown product.

Yesterday, Hargreaves Lansdown research also found that in the 100 days since 6 April, remaining invested has proved 10 times more popular than taking out an annuity, with annuity purchases making up just 7 per cent of all retirement transactions.

Yvonne Braun, the ABI’s director for long-term savings policy, explained that the data shows people with smaller pots tend to be cashing them out while those with larger pots tend to be buying a regular income product.

“We are just three months into the biggest overhaul in pensions for a generation which was introduced in only one year, so some issues remain that need to be worked through, in particular around financial advice,” she added.

At the start of the month, the Financial Conduct Authority stated that most providers have coped well with the increased workload since the reforms, although it did raise some “operational problems” in a market update.

Christopher Woolard, director of strategy and competition, said that there were over 1m calls to insurers in the first month of the freedoms, representing an 80 per cent year-on-year increase.