The pace of withdrawals from defined contribution pension pots started to slow in the three months between October and December 2015, as pent-up demand following the introduction of freedom and choice began to ease.
The number of pensions being accessed for the first time fell 36 per cent to 127,094 between October and December, figures from the Financial Conduct Authority showed this week. This is a decline from 197,443 in the preceding three months. Between April and June, the first three months of freedom and choice, the figure was 178,990.
One of the biggest issues is people don’t know what they don’t know
Jonathan Watts-Lay, Wealth at Work
As would be expected, the number of full cash withdrawals also fell sharply, with 65,610 between October and December down from 113,100 in the previous three months.
Advice figures vary
Advice use varied widely over the period. Use of a regulated adviser was recorded for 68 per cent of savers entering drawdown, but only 34 per cent of those using an uncrystallised funds pension lump sum.
Source: FCA
The FCA said in its business plan, released this week: “A well functioning advice market is crucial to ensure people can access the support they need to make informed financial decisions at every stage of their lives.” Implementing the recommendations of the financial advice market review is one of its priorities over the 2015-16 period.
Increasing take-up of advice is often simply a case of educating people about the risks they face, said Jonathan Watts-Lay, director at financial education company Wealth at Work.
“If we’re talking to a pre-retirement group five to 10 years from retirement, we get something like 75 per cent of them taking [advice] up,” he said. “One of the biggest issues is people don’t know what they don’t know.”
Guidance can be helpful at least as a way of highlighting savers' knowledge gaps, he said.
However, he added, “the problem is if they get some guidance and don’t go for advice”.
The other drawback with guidance is in the lack of consumer protection; if a saver takes regulated advice and the adviser gets it wrong, they have consumer protection to fall back on, whereas if they use guidance and make the wrong decision there is no recourse.
Nathan Long, senior pensions analyst at investment platform provider Hargreaves Lansdown, said the lower advice rates for some retirement options made sense.
“Drawdown is a higher-risk way of drawing their benefit, people need to go into that kind of arrangement with their eyes open… it’s a great thing most people are taking it for drawdown, for annuities most people are quite capable of making a sensible decision without taking advice.”
He said people should shop around for annuities, but “you don’t necessarily need advice to shop around”.
Robo-advice
Mark Futcher, head of defined contribution at consultancy Barnett Waddingham, said the bridge between guidance and advice could be solved by the advent of robo-advice.
“A lot of this is like a decision tree,” he said. “I think a lot of it can be done electronically. The bit that needs human help is the selection of the policy.”
The FCA announced as part of its business plan that it would set up a robo-advice unit to deal specifically with firms that provide robo-advice.
