DrawdownSep 6 2018

Advised pension decumulation hits new low

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Advised pension decumulation hits new low

An increasing proportion of pension pots accessed through an annuity or full cash withdrawal are non-advised, new data from the Financial Conduct Authority (FCA) has shown.

According to a bulletin (6 September) published today by the regulator, advised sales on these products in the second half of 2017/18 fell to their lowest levels in two years.

Between October 2017 and March 2018, only 28 per cent of annuities sold were advised, down from 34 per cent during the same period in the previous year.

By contrast, the proportion of annuity sales where customers took up pensions guidance increased from 17 per cent to 30 per cent over the same period, suggesting this has become a more popular channel for annuity purchases, the watchdog said.

The proportion of full cash withdrawals sold through advised channels fell to 25 per cent from 38 per cent. In this case, the take up of pensions guidance also fell, from 18 per cent to 15 per cent.

The proportion of pots first entering drawdown after advice remained at 69 per cent, meaning just less than a third of drawdown sales were still non-advised.

Some 11 per cent of pots entering drawdown which weren’t advised took up pensions guidance, which was relatively unchanged.

The FCA said it was particularly interested in monitoring non-advised drawdown sales because of the risks of managing drawdown.

According to the regulator’s Retirement Outcome Review final report, published in June, around 50,000 non-advised consumers were wholly holding cash, which was 33 per cent of the total, with more than half at risk of losing out on significant returns as a result.

Overall, drawdown sales continued to grow at a faster rate than annuities – 8 per cent and 1 per cent, respectively.

Despite the decline in annuity sales since the pension freedoms, there were still more than eight times as many annuity contracts in payment than drawdown plans, the regulator added.

Rachel Vahey, product technical manager at Nucleus, said the FCA’s data showed pension freedoms remained as popular as ever.

She said: "Although the initial ‘dash for cash’ has abated, drawdown has become the new normal with people continuing to use it as a way of accessing their pension money.

"What is interesting is the surge in the total inflows into drawdown. The average pension pot size entering drawdown has increased by 18 per cent on the year before.

"The data doesn’t examine the reasons why – this could be as a result of more people reaching crystallisation with a larger defined contribution pot or increased defined benefit transfer activity, or another reason."

The regulator’s research also showed 60 per cent of drawdown sales during the period were for pots going into zero-income drawdown – where a tax-free cash lump sum has been paid but no income has ever been taken.

Ms Vahey added: "This suggests people are making good use of the flexibility that drawdown offers.

"They are able to access their tax-free cash, but delay taking an income until they need it, therefore meshing together retirement and continuing to work, maybe in a part-time capacity."

The FCA’s data was collected among a representative sample of pension providers which manage £384bn in assets.

maria.espadinha@ft.com