55-59 year olds lead charge for pensions cash – FCA

FCA retirement income dataMore than two thirds of pensions accessed in Q3 of 2015 were fully cashed out, with consumers aged 55 to 59 making the highest level of withdrawals.

FCA retirement income market data published to day shows 84 per cent of drawdown investors are taking prudent levels of income withdrawal, annuity shopping around is getting worse not better.

The report shows 120,969 pensions – 68 per cent of all those accessed, were fully cashed out. Of these, 88 per cent were small pot pensions worth less than £30,000. The data shows 32 per cent were used to take an income after tax free cash through either partial drawdown, partial UFPLS or to purchase an annuity.

The majority of consumers accessing their pensions this quarter stayed with their existing pension provider to do so – 58 per cent of consumers going into drawdown stayed with their existing provider, while 64 per cent of consumers purchasing annuities stayed with their existing provider.7

Of the 178,990 pensions that were accessed 34 per cent used UFPLS, for both partial or full withdrawal, 30 per cent used income drawdown for both partial or full withdrawal, 13 per cent were used to purchase an annuity and 23 per cent were full withdrawals using small pot lump sum payments. A further 3,381 were used to purchase 3rd way products.

The 55-59 age group were the age group responsible for most withdrawals for pots between £10,000 and £29,999 across both UFPLS and drawdown.

Ages of withdrawalFifteen providers in the sample, which constitutes 95 per cent of DC savers, had pension policies with Guaranteed Annuity Rates (GARs). Overall 68 per cent of GARs were not taken up. This figure includes customers who are too young to exercise their GAR. This trend was higher in small pots, where 79 per cent of those with pensions below £30,000 with a GAR did not take them up.

Customers aged 55-59 made the highest level of withdrawals as a percentage of their pension pot. 27 per cent of these customers took an income of 10 per cent or more of their pot after any tax free cash was deducted. Our data includes regular and ad-hoc withdrawals, existing customers who entered into drawdown historically and customers accessing their pensions for the first time.

On average, 17 per cent of consumers told their provider they had used Pension Wise. This increased to 22 per cent of consumers with small pots where use of regulated advice is lower. Providers are only required to record whether a consumer said they used Pension Wise when consumers are not using a regulated adviser.

Old Mutual Wealth pensions technical expert Jon Greer says: “The FCA figures show that 1 in 5 people who fully encashed a pot of £250,000 or above used neither a regulated adviser or Pension Wise for advice or guidance. This is concerning as they would likely have been subject to a substantial tax hit on the withdrawal and there is the potential that they did not fully understand the tax implications of their decision.”
Hargreaves Lansdown head of retirement policy Tom McPhail says: “Many aspects of the freedoms are working very well but there are aspects which give cause for concern. Income withdrawal rates are mainly at a prudent level, suggesting that investors are not recklessly running down their savings; annuities are still being purchased, and the full encashments are mainly of the very small pots. However, market competition appears not to be working, with fewer annuity purchasers shopping around. We are also concerned about the forthcoming pension tax review: the numbers of people accessing their pensions has increased very substantially; if the government were now to scrap up-front tax relief in favour of tax-free withdrawals, it could remove the remaining brakes on the vehicle and cause the country’s retirement savings system to run out of control.”