Regulation  

Two-fifths shun drawdown advice

Two-fifths shun drawdown advice

An estimated 42 per cent of customers going into drawdown did so without using an adviser, the FCA has revealed. In its Retirement Income Market Data report, based on the period July to September 2015, the regulator revealed many new customers entering drawdown have chosen not to use a regulated adviser – this figure may also include customers fully cashing out via drawdown.

The use of Pension Wise, the government’s online guidance service, is higher among those with smaller pension pots and where take up of advisers is much lower. An estimated 17 per cent of consumers told their provider they had used the service.

“Much more needs to be done to raise awareness around the benefits of seeking out the best deal as well for seeking advice to ensure the best outcome for those at retirement,” Dean Mirfin, technical director at Key Retirement said.

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When it comes to annuities, 37 per cent of customers used an adviser, and 64 per cent of those who purchased an annuity during the quarter stayed with their existing provider. “Shopping around is not working,” Mr Mirfin added. This could change if people embrace the secondary annuity market, which is due to come into action in April 2017, meaning consumers will be able to sell their annuity.

It was also found that 178,990 pensions were accessed by consumers in the three months, to either take an income or to fully withdraw the money as cash – a 13 per cent drop from April to June’s reported figure of 204,581. Of the 178,990, 60,600 (34 per cent) were accessed using uncrystallised funds pension lump sum (UFPLS), 30 per cent used it for income drawdown and a further 23 per cent were full withdrawals using small pot lump sum payments. Annuity sales have also increased – from 12,418 (6 per cent of Q2 figures) to 23,385 (13 per cent of Q3 data). The data from Q3 has seen pre-pension freedom sales figures, slightly higher than Q1 2015 (20,600) but still far from Q1 2014’s 74,270.

The number of consumers entering drawdown without the use of an adviser is troubling, although some firms reported they only record whether an existing client used an adviser when they set up their pension and the drawdown may be done using an option within their existing plan. Peter Bradshaw, national accounts director at Selectapension, said there is more work to do to ensure those accessing their pots are fully aware of the opportunities available to them. “Engaging with an adviser is essential so that consumers understand their options, and that they secure the right investment strategy to meet their retirement goals.”

An adviser is particularly important when cashing out large pots. Of the number of pensions accessed, 68 per cent (120,969) fully cashed out, and 88 per cent of those were small pots of £30,000 and below.

The Treasury has also revealed it will place duty on the FCA to introduce caps on pension exit charges, the limit has not yet been disclosed.

charlotte.richards@ft.com