The Financial Conduct Authority’s latest retirement income market data has revealed the highest levels of adviser use was for customers going into drawdown, at 58 per cent.
This means 42 per cent of customers going into drawdown did not use an adviser, while 37 per cent of annuity purchases were made through an adviser.
The research found those with larger pots were more likely to have used a regulated adviser.
It also showed on average, just 17 per cent of consumers told their provider they had used the Pension Wise guidance service.
This increases to 22 per cent of consumers with small pots where use of regulated advice is lower.
Jon Greer, pensions technical expert at Old Mutual Wealth, said he was worried one in five people who fully encashed a pot of £250,000 or above used neither a regulated adviser or Pension Wise for advice or guidance.
“This is concerning as they would likely have been subject to a substantial tax hit on the withdrawal and there is the potential that they did not fully understand the tax implications of their decision.”
Overall, 178,990 pensions were accessed in the second quarter after the pension freedoms came into force - a 13 per cent drop on the figure of 204,581 reported from the April to June quarter data collection.
It noted data from one quarter to the next is not directly comparable, because of different samples and the way questions were framed. “However, we believe the trend of lower numbers of consumers accessing their pensions from the first quarter to the second reflects what has happened in the market and is consistent with the feedback we have had from firms,” the FCA said.
Of the 178,990 pensions that were accessed, 120,969 pensions (68 per cent) were fully cashed out and of these, 88 per cent were small pot pensions.
Almost a third, or 58,021 pensions, were used to take an income after tax free cash using partial drawdown, partial uncrystallised fund pension lump sum (UFPLS), or to purchase an annuity.
Of the drawdown and annuity figures, 3,381 were used to purchase ‘third way’ products.
The FCA said there was a reduction in numbers compared to the April to June quarter for everything except annuities.
The majority of consumers accessing their pensions this quarter 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.
Andrew Tully, pensions technical director at Retirement Advantage, said that this was the statistic that stood out for him.
“Unfortunately, the shopping around message appears to have been lost in the general noise around pension freedoms. Despite measures being introduced last April to try and encourage better practice, the situation is getting worse.
“The issue extends to drawdown. While drawdown is not a one-off purchase it is still important people look around the market for the right drawdown product, as you could easily find yourself caught out by high charging or complicated products.”
Matthew Harris, owner and IFA at Dalbeath Financial Planning, suggested that the chance that the existing provider is the best option for either drawdown or annuities is about 5 per cent, so only one in 20 customers should stay with their existing provider on average.
“The fact that 60 per cent are doing so means that people are missing out on thousands of pounds of income in retirement.”
Customers using drawdown or UFPLS made partial withdrawals in the quarter at the following rates as a percentage of their pension pot after tax free cash:
| Less than 2% | 180,321 (71%) |
| 2 – 3.99% | 32,169 (13%) |
| 4 – 5.99% | 7,243 (3%) |
| 6 – 7.99% | 5,862 (2%) |
| 8 – 9.99% | 4,442 (2%) |
| 10% or more | 24,396 (10%) |
Those aged 55 to 59 made the highest level of withdrawals as a percentage of their pension pot, with 27 per cent of these customers taking an income of 10 per cent or more of their pot after any tax free cash was deducted.
The FCA requested data from a sample of 95 pension providers, including all life insurers who reported pension reserves of more than £2bn on their Annual Insurance Returns and all non-life insurance personal pension operators with more than £500m of assets under administration.
This accounted for 71 firms, with a further 24 firms selected for good coverage by taking every fifth firm in the remaining population ordered by size of pension assets.
Fifteen providers in the sample had pension policies with Guaranteed Annuity Rates. Overall, 68 per cent of GARs were not taken up; a figure which includes customers who are too young to exercise their GAR.
This trend was higher in small pots, according to the regulator, where 79 per cent of those with pensions below £30,000 with a GAR did not take them up.
peter.walker@ft.com
