Pension Freedom  

Pension freedoms: were they really a good idea?

Meanwhile, larger pot sizes of £250,000 or more saw nearly 27,000 choosing partial drawdown compared with only 357 who fully withdrew their pot.

So after six years of flexibility, does this mean that people are understanding when it is a good idea to cash in the whole pot?

It appears that for some, keeping their pot invested will be in their best interest rather than withdrawing it all and keeping it in cash where it will not make any returns.

As the FCA data showed, those with larger pots are more likely to enter drawdown and keep some of their money invested, to ensure that the pot lasts them for the rest of their lives

Claire Trott, divisional director – retirement and holistic planning at St James’s Place, says people have definitely been made to stop and think before they just take all of their money out.

“I think that would have been the biggest risk to people, just accessing everything and paying way too much income tax, rather than probably many other risks you could think of. [People tend to] want it somewhere where they understand it rather than it being in a pension that they don't understand.”

Timing issues

The industry has often said that these reforms were rushed through too quickly, and if more time was given any potential issues could have been ironed out before they became an issue.

Generally speaking, rumours swirl for months in advance of the Budget about what it will contain; freedoms seemingly came out of the blue.

In fact Trott can remember the shocking announcement, as expecting it to be fairly quiet, she had stepped away from her desk when the pensions world was turned upside down.

“I think they probably didn't consider the knock-on effects on what the announcements would do to the industry and what people would do when they were told they don't have to lock in [to an annuity],” she says.

But Trott is not sure that delaying it or phasing it in a different way would have made much difference.

Others would have liked the industry itself, as well as the regulators, to be more involved.

Martin Tilley, head of technical and director of WestBridge SSAS, says had the proposals been launched in a consultative form, many of the complications that have emerged over the past six years would have been identified by the industry. This way the government would have felt compelled to address them in advance rather than after the reforms were pushed through.

“[Pension freedoms] were rushed out too quickly, [with] insufficient time for PensionWise and other bodies to gear up and be effective,” Tilley says.