Full cash withdrawals are still dominating the retirement income market, according to analysis by the Financial Conduct Authority, as concerns were raised over consumer reluctance to seek financial advice.
The FCA also highlighted the continuing prevalence of scams, although there are signs that fraudsters are targeting pensions less.
If we continue to see a drop-off in the proportion of people getting expert help with their pensions, that would potentially be a cause for concern
Tom Selby, AJ Bell
Overall, the FCA found that 8 per cent fewer people had accessed pension pots with contract-based providers for the first time in Q3 of 2016, at 145,068 withdrawals.
Of those, 55 per cent were taken as full cash withdrawals, a level that has hardly changed from quarter to quarter. Twenty-eight per cent of pots were moved into drawdown contracts, while 14 per cent of retirees took out annuity policies.
The continued dominance of cash withdrawals is perhaps unsurprising, given the small current average pot size, noted Tom McPhail, head of pensions research at platform provider Hargreaves Lansdown.
He expected cash withdrawals to decrease in the long term as pots grow, but said short-term trends would vary.
Whether or not this should be of concern to policymakers is not yet clear, as it is not known how this cash is then used.
Annuities gain ground on drawdown as savers seek income for life
The anticipated plundering of pension funds following the implementation of the freedom and choice reforms last April has failed to materialise, according to data from the Association of British Insurers.
“[The FCA] aren’t, to the best of my knowledge, conducting any significant analysis of consumer decision-making processes,” said McPhail, calling for more to be done in this area.
Boost advice uptake
The FCA bulletin also suggested a lack of competition in the at-retirement market. Fifty-six per cent of drawdown clients and 58 per cent of annuity purchasers used their existing provider for their product.
And the use of regulated advisers in making these decisions is also decreasing. While 65 per cent of drawdown purchases were recorded as advised, just 47 per cent of savers taking cash sought advice, and 33 per cent for annuities.
HMRC figures on flexibilities leave questions unanswered
The ‘dearth of information’ on pension freedoms bemoaned in a recent Work and Pensions Committee report could have been remedied by HM Revenue & Customs figures, but industry representatives said the report lacked detail.
“If we continue to see a drop-off in the proportion of people getting expert help with their pensions that would potentially be a cause for concern, particularly given the increasingly complex nature of the decisions facing retirees,” said Tom Selby, senior analyst at platform provider AJ Bell.
Selby said costs would have an impact on savers’ decisions to seek advice, especially where cash withdrawals of small pots are being considered.
Getting wise to scams
For Kate Smith, head of pensions at provider Aegon, the importance of financial advice meant policy-makers would have to take care when combatting scams.
She warned against including legitimate practices by the regulated adviser community in the ban on pensions cold calling, explaining: “What we don’t want to do is put people off receiving financial advice.”
Smith welcomed the news that 36 per cent of consumer enquiries in 2016 had related to checking the accreditation of companies, showing increased awareness of scams.
