14/07/2017

‘Lack of public trust in pensions’* is a factor behind the withdrawal of around £11bn from one million pension pots since the new ‘pension freedoms’ were introduced in April 2015, reveals the Financial Conduct Authority in an interim report on the first major study of the changing retirement income market. 

One of the main issues identified in ‘Retirement outcomes review: interim report’ is that – partly because of lack of this trust – more than 50% of fully withdrawn pots were not spent but moved into other savings or investments. This can result in consumers paying too much tax and missing out on growth and other benefits.

Other key findings in the interim report include

  • 72% of pots are accessed by consumers under 65, most of whom choose to take lump sums rather than a regular income
  • while 53% of accessed pots have been fully withdrawn, 90% of them held under £30,000 and 94% of the consumers who made full withdrawal had other retirement income in addition to the state pension
  • twice as many pots are moving into drawdown, rather than annuities
  • before the freedoms, just 5% of drawdown was accessed without advice, compared with 30% now
  • consumers who access their pots early without taking advice typically buy drawdown from their current pension provider
  • continuing withdrawal from the open annuity market by providers could weaken competition over time
  • product innovation has been limited, particularly for the mass market

Possible measures recommended to address emerging issues include

  • assessing whether additional protections are needed for consumers who buy drawdown without advice
  • improving competition in non-advised drawdown
  • helping consumers understand their options and improving trust in pensions, primarily by building on existing initiatives such as the free guidance provided by Pension Wise

The FCA has invited feedback on the interim report and intends publishing its final report in the first half of 2018.

* While welcoming the report as an important part of the analysis of how the pension freedoms have bedded in, the Association of British Insurers claims that its own findings do not support the view that accessing pension savings early has become ‘the new norm’.

It considers that providers responded swiftly to the pension reforms. Work already commenced by ABI and its members includes a project progressing ideas on how a flexible drawdown comparison tool would work, alongside efforts to increase consumer engagement with pensions and create a groundbreaking pensions dashboard service.