FCA data show Pension Wise take-up is still low

The government's service Pension Wise has received criticism from the Work and Pensions Committee and the pensions industry alike since it was first announced in the 2014 Budget, with many saying it is not enough to give guidance when many people need advice.

You often see, ‘This advice will cost no more than X’, but they don’t explain the benefits of taking that advice

Rona Train, Hymans Robertson

The latest FCA data show 17 per cent of consumers on average have used Pension Wise, rising to an average of 22 per cent for consumers with small pots.

Use of advice and guidance varied widely across pot sizes and product choices, with close to 70 per cent of those withdrawing an uncrystallised funds pension lump sum using neither Pension Wise nor an adviser. In contrast, 58 per cent of people going into drawdown used an adviser.

Tom McPhail, head of pensions research at investment platform provider Hargreaves Lansdown, said: “It’s inevitable a substantial number of investors aren’t going to pay for regulated advice.”

He said more needed to be done to encourage take-up of Pension Wise: “The government has thrown quite a lot of policy commitment at Pension Wise and so far, consumers have shown a marked disinclination to make use of it.”

Despite this, he warned the data may not be reflective of future trends in how people take pensions, as the pent-up demand of those who want to take cash has not yet been fully exhausted.

“There’s still a bow wave effect there that hasn’t fully washed through the system,” he said.

Jon Greer, pensions technical expert at wealth manager Old Mutual Wealth, raised particular concern about figures showing that 20 per cent of those who fully withdrew a pot of £250,000 or more sought no guidance or advice.

He said: “One of the main risks is someone doing something without understanding what they’re doing. The amount of tax… on a large withdrawal like this would be significant.”

Cash is still king

The most popular option for those withdrawing their pension was both full and partial UFPLS with 34 per cent of consumers, followed by full and partial income drawdown with 30 per cent, the data showed.

Annuities were the least popular option, chosen by 13 per cent of consumers. The data also revealed that 68 per cent of those with guaranteed annuity rates did not take them up.

Rona Train, partner at consultancy Hymans Robertson, said more needed to be done in the workplace to engage people with their pensions, citing research the company conducted last year, which showed employers believed their employees were just as likely to look to them for guidance on retirement as to the government.

She added advice services needed to be pitched to consumers differently.

“You often see, ‘This advice will cost no more than X’, but they don’t explain the benefits of taking that advice,” she said. “We need to play more on the fact that people trust their employer.”