Closing ranks

We have already passed the milestone of the first 100 days since the pension freedoms reforms were introduced in April, and as it stands £1.8bn has been withdrawn from pensions in that time, according to the Association of British Insurers.

A hundred days, already. Time flies when you are having fun, does it not?

Seriously though, that massive figure is spread over almost a quarter of a million payments, and the breakdown of how these withdrawals have been taken and what has been done with the money make interesting reading. For example, more than £1bn has been taken out in 65,000 cash withdrawals from pension pots, making the average lump sum taken £15,500. There have also been 170,000 withdrawals from income drawdown policies, at a total value of £800m.

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How many of these withdrawals have gone to buy Ferraris? Well, all right, we are not sure – but what we do know is this: around 11,300 annuities have been bought with £630m of this money, with a further £720m used to buy 10,300 income drawdown policies. The really good news is that customers are grasping the need to shop around for the best deal – almost half of people buying an annuity choose a different provider to the one they had their pension with, and more than half switched when buying an income drawdown product.

The changes to pension freedoms should have made a significant difference to the way everyone deals with their retirement, but unfortunately many firms are still not allowing pensioners to access their funds according to the new rules.

Millions of savers cannot access their pension in the way the government planned for this reason. For example, a number of firms are insisting they first take financial advice, according to an investigation by a national newspaper. If pensioners have guaranteed annuity rates as part of their pension, they will also need to take advice before accessing their cash if their fund is worth £30,000 or more. While this makes sense, the cost of that advice could wipe out any benefit they get from the pension freedoms in the first place.

Those who built up funds in a workplace defined contribution scheme could also be prevented from accessing the pension freedoms as a result of charges imposed by insurance firms on the trustees who are running the scheme. It simply makes accessing the funds too expensive as far as the trustees see it, and given their legal responsibility for all employees within the scheme, their tendency to baulk at the cost is understandable.

So, it begs the question of why pension providers are seemingly making life difficult for those who want to access their pension – it is their money after all, and the government has now said it is perfectly legal for them to do it.

Yes, protecting revenue is likely to be one of the reasons – but the threat of a regulatory backlash will surely also play a part. The FCA is already looking at what barriers pensioners are facing when they want to access their pensions under the new terms, and will be looking at whether they face “excessive” early exit fees. Time will tell whether the pension providers will have their wrists metaphorically slapped for raising barriers to pension freedoms.