As a direct result of the freedoms, 15% of the working population - or 6.2 million people - are saving more into their pension than they were in April 2015, according to research from Aegon.
However 63% of Guaranteed Annuity Rates are not being taken up according to the FCA, which Hargreaves Lansdown recently described as "worrying". The firm said that very often GARs can represent very good value for money and in the near future, investors may be able to sell their GAR annuities on the secondary market, exchanging this income for a cash lump sum.
They also don’t have to take all their pension benefits in one go, so it may be possible to access some cash from a pension but also to defer accessing a GAR pension until it reaches its option date.
The use of regulated advisers has also remained relatively low. 68% of drawdown investors used an adviser, however it was just 42% for annuity purchasers and 34% for UFPLS.
This reflects the new reality that most investors are self-managing their retirement funds most of the time, with a minority choosing to take advice only on specific occasions, and an even smaller percentage taking regular advice on an ongoing basis.
The research by Willis Towers Watson has found that, where members of defined benefit pension schemes have been given access to free financial advice, nearly one-in-five transferred out of their scheme to access flexible retirement options available through a defined contribution pot.
Of those who spoke to an adviser, 36% chose to transfer out of their DB scheme. 45% of those transferring bought an annuity, 35% chose to take their funds over time through drawdown and 20% took the majority of their new DC fund as cash.
However analysis by Hargreaves Lansdown of over 27,000 drawdown investors also shows that self-managed retirement investors are making good decisions, drawing prudent levels of income, not panic selling in market volatility and selecting sector-beating investment funds.
Its research is also consistent with recent FCA data for Q3 2015, which shows that 86% of investors drawing less than 4% a year in income.
Aegon research found that 11% of those aged 55-65 have taken part of their pension as a lump sum and just 5% have withdrawn their entire savings pot. The average amount over 55s are cashing in is just £13,842, calming initial fears that the pension freedoms would create a reckless ‘Lamborghini’ generation.
Additionally, over four fifths (82%) of those aged 55-65 are not currently planning to take any of their pension savings, highlighting that many are taking a longer view on their retirement income. This is supported by the recent ABI figures which suggest a slowdown in the original “dash for cash” that was observed in the six months post pension freedoms.
The FCA data provides further evidence that the retirement income market is settling down. Between October and December, 127,094 people accessed their pensions for the first time. In Q2, this number was 197,443 and in Q1 it was 178,990.
Yet this still shows that in the first 9 months of Pension Freedom, over half a million people have accessed their pension pot for the first time. This compares with a typical annual turnover of around 375,000 for the years immediately prior to Pension Freedom.
Kate Smith, head of pensions at Aegon UK, said:
“To see 6.2 million people saving more into their retirement pot in the last 12 months is very encouraging news. Despite the initial scaremongering, the majority of people aren’t withdrawing vast sums of money to embark on a huge spending spree.
“Over 55s must continue to be smart with their money, cash ISAs and bank accounts are unlikely to provide the best returns in the current climate. Retirement could well last 20 or 30 years, so it’s vital that people are helped to make choices that will give them a sustainable income to give them the retirement they want, for as long as they need.”
Tom McPhail, Head of Retirement Policy at Hargreaves Lansdown, added:
“We’re still exploring the impact of the pension freedoms, however over this first year, it appears that self-managing drawdown investors haven’t all been rushing off to buy sports cars, in fact they’ve been managing their money pretty sensibly. They haven’t been panic selling investments when the markets were falling, they’ve maintained well-managed, diversified portfolios which have outperformed their sector averages; they’ve been taking sensible levels of income and they’ve also kept a prudent reserve of cash to tide them over when risk-based investments have fallen.”
“The overall data paints a healthy picture of investors self-managing their drawdown arrangements effectively. However we can also see that more work needs to be done. Within these excellent figures, it is likely there are some investors who would benefit from better support and guidance to help them manage their retirement incomes effectively.”
