On the 12th June the Financial Conduct Authority (FCA) released their much anticipated interim Retirement Outcomes report (1). This revealed some fascinating Pension Freedom trends:
- 1 million pension pots have been accessed
- 64% of pots accessed contained less than £30,000
- 72% of pots accessed were by people aged under 65
- More than half of pots accessed have been taken in full
- 90% of pots taken in full were less than £30,000
- Drawdown option now twice as popular as annuities
Looking at the headline figures it is clear that pension freedoms have been welcomed by consumers; in fact early withdrawal of funds by those aged under 65 can now be described as the new norm (2). However, the FCA is keen to point out that this doesn’t mean pension savings are being squandered with over 90% of those withdrawing their pots in full saying they have alternative sources of retirement income (1). In addition the FCA found that have of the funds withdrawn from pension pots were placing the funds in other forms of savings, which could suggest a level of mistrust in pensions (2).
The popularity of drawdown schemes has grown and they are now twice as popular as buying an annuity which prior to pension freedom were purchased by 90% of people with pension savings (1). However there was also some evidence that consumers were accepting drawdown from their providers without fully considering their options. 30% of those buying drawdown have done so without advice, compared with 5% prior to freedom (1). This has led the FCA to actively consider if they can offer greater protection for those who drawdown without taking advice (3).
Between October 2015 and September 2016, sales to consumers who did not take advice accounted for 63 per cent (52,000) of annuity sales and 30 per cent of drawdown sales which amounted to 48,000 sales (2). The FCA said:
“Getting this right will require cooperation across the government, regulators, industry and consumer bodies as the measures we are proposing do not fall within the FCA’s remit alone and some of these issues sit outside our immediate powers.” (1)
As a result of the move away from annuities, providers have been leaving the market, leaving less choice for consumers with a lack of alternative products in place. The FCA is hoping to see new products emerge that combine flexibility with a guaranteed income (2).
The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.