Pensions  

Early pension access is 'new norm'

Early pension access is 'new norm'

The Financial Conduct Authority has said accessing pension pots early has become the “new norm” for retirees.

As part of its retirement outcomes review, the regulator found that almost three quarters – or 72 per cent – of pots that have been accessed are by consumers under 65.

This was from a study of 171, what the FCA calls, 'pension decision makers'.

The most popular option has been to fully withdraw the pot, with 53 per cent of pots fully withdrawn between October 2015 and September 2016.

But the fully withdrawn pots are mostly small, with 90 per cent below £30,000 – in fact 60 per cent were under £10,000.

Demand for drawdown has increased eight-fold, from around 5,000 drawdown products sold in each quarter of 2013 to more than 40,000 sold in the third quarter of 2016.

One of the issues the FCA found was that more than half of fully withdrawn pots – 52 per cent – were not spent but were moved into other savings or investments.

The FCA, which has pointed out that this could lead to people paying too much tax or losing benefits, said its consumer research attributed this to a lack of public trust in pensions.

In the report it said: “Mistrust was typically based on the negative media coverage of the broader pensions sector, including DB schemes, rather than personal experience.

“Many consumers referred to the pension scandals they had read about in the press.

“Consumers also believed that the pension rules were unlikely to stay the same, so wanted to access their savings before the rules changed again.”

Consumers also told the FCA that money in their pension pot was “doing nothing” and that pensions were “impossible to understand” so they preferred to put their money in an Isa instead.

In fact of those who fully withdrew their pot, only around a quarter had spent it.

The FCA’s research found 52 per cent of those who made a full withdraw put it in another savings vehicle.

Generally the younger a saver is, the more likely they are to fully withdraw their pot or go into drawdown.

Of those aged between 55 and 59, which the largest cohort at 40 per cent of the total, 64 per cent fully withdrew all their savings while 28 per cent went into drawdown.

Meanwhile of the 65 to 69 cohort, 43 per cent fully withdrew their pot and 26 per cent went into drawdown.

By this age annuities appear to become more popular, with 29 per cent buying one.

damian.fantato@ft.com