Pension Freedom  

FCA pension freedom data exposes failing systems

FCA pension freedom data exposes failing systems

The majority of people accessing their pension pots for the first time in 2016 withdrew the full amount as a cash lump sum, the Financial Conduct Authority has revealed.

In the third quarter of 2016, 145,000 pension pots were accessed for the first time.

Of those, 55 per cent were withdrawn entirely as a cash lump sum, opening savers to the full tax charge.

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In the same quarter, 28 per cent of pots were converted to a drawdown product and 14 per cent were used to buy an annuity. 

Less than 3 per cent of pots were taken as an uncrystallised fund pension lump sum (UFPLS).

Over the year, the number of pots taken as cash has went from 66,000 in December 2015 to 80,000 in September 2016.

Over that period, conversions to annuities, drawdown and UFPLS remained the same, hovering around 20,000 for annuities, 40,000 for drawdown, and 3,000 for UFPLS.

The FCA revealed that financial advisers were used on 65 per cent of drawdown conversions. That was down from 68 per cent in the last quarter of 2015.

Financial advisers were involved in 47 per cent of full cash withdrawals - up from 37 per cent on the last quarter of 2015. 

Only 33 per cent of annuity conversions were advised, however, this was significantly down on the 42 per cent for the last quarter of 2015.

Forty-four per cent of UFPLS withdrawals were advised, up from 34 per cent in the last quarter of 2015.

The FCA also revealed the majority of pension savers were not shopping around.

Of those buying drawdown, 56 per cent were using their existing pension provider. Of those buying annuities, 58 per cent were using their existing provider.

However, more people were taking up valuable guaranteed annuity rates (Gars). 

Stephen Lowe, group communications director at Just, said the figures revealed "a failing system" in which not enough people were seeking either guidance or full regulated advice.

He said: "We don’t know whether customers who have withdrawn their savings are receiving good value from the subsequent investments they have been making as a consequence of this one-time decision.

"Behavioural economics shows that defaults work, seeing these figures it is getting harder to justify why Pension Wise is not the default option for all those looking to access their pensions benefits."

LV's head of policy Philip Brown agreed, saying the figures highlighted "the worryingly low number of people taking advice and exercising choice at retirement".

"It's vital government and industry work together to make sure we support consumers and signpost them to advice so they can make informed decisions at such an important time in their lives," he said.

Aegon's Steven Cameron focused on UFPLS, saying it was "worrying" that so few opting to go down this route were seeking advice.

"The considerations, when accessing a pension through UPLS, are identical to flexible access drawdown and more needs to be done to highlight the value advice can add," he said.

james.fernyhough@ft.com