Pension providers have expressed widespread concern over the Financial Conduct Authority’s latest retirement income market data, which revealed that many are still not shopping around or seeking advice.
Figures for the period from July to September last year were published earlier today, the highest levels of adviser use was for customers going into drawdown, at 58 per cent, meaning 42 per cent are entering drawdown without help from an adviser.
On average, just 17 per cent of consumers told their provider they had used the Pension Wise guidance service, a figure which increases to 22 per cent of consumers with small pots, where use of regulated advice is lower.
Jim Boyd, director of corporate affairs at Partnership, told FTAdviser that it should be a matter of “extreme concern” to policy makers that 42 per cent of people went into drawdown without the benefit of regulated financial advice.
“Not only are they exposed to investment performance against a background of extreme market volatility but they also have to make judgements about longevity and life expectancy which have challenged actuaries for decades.
“People who have had to drawdown when investment performance is poor, without the benefit of additional cash reserves or annuities – run the risk of running out of money before they die or having to live an extremely frugal retirement.”
He added that without the expertise offered by an IFA, “there is a risk that many people may come to realise too late that they have mis-bought these products”.
Meanwhile, the majority of consumers accessing their pensions over the period stayed with their existing pension provider to do so, with 58 per cent going into drawdown with their existing provider and 64 per cent purchasing annuities with their existing provider.
John Perks, managing director for retirement solutions at LV, said these figures are “extremely worrying”, pointing out that without shopping around, retirees are missing out on getting the most from their savings.
He said: “We believe we are on cusp of a pensions mis-buying scandal,” he continued, arguing the government must use the Financial Advice Market Review to introduce a package of measures to give everyone access to affordable, easy-to-understand, regulated retirement advice and take radical steps to incentivise advice to kick-start demand.
Hymans Robertson partner Rona Train suggested the findings reveal “stubborn cracks in the pension freedoms that can’t be fixed with a plaster”, with low uptake of the free guidance service remaining a particular concern.
“The other concerning aspect is that 68 per cent are not taking up Guaranteed Annuity Rates where providers offer them. These often give a higher level of annuity income than anything else you could get on the open market – so essentially people are missing out on a great opportunity to secure an income for life at rates that are hard to beat.”
David Smith, director of financial planning at Tilney Bestinvest, said the statistics demonstrate an alarming trend, with many of the pre-pension freedom problems not being fixed.