FCA: almost half use drawdown without advice

Just 58% of customers accessing their pensions using drawdown used a regulated adviser, according to the latest FCA Retirement Income Market Data figures.

Related topics:  Retirement
Rozi Jones
7th January 2016
pension nest egg annuity retirement old people

While this includes customers fully cashing out via drawdown, it shows that many customers newly entering drawdown to stay invested are not using an adviser.

In comparison, 37% of customers purchasing an annuity used an adviser.

The FCA clarified that for customers entering drawdown, regulated advice may have been provided before the customer accessed their pensions savings e.g. SIPP provider selected by adviser when the customer sets up their pension.

The regulator asked firms for details of when advice had been provided at the point that customers accessed their pension, but in many cases providers did not capture this.

Across all products and full withdrawals, the larger the customers’ pension pots, the more likely they are to have used a regulated adviser.

Overall, in Q3 2015 178,990 pensions were accessed by consumers to take an income or fully withdraw their money as cash. This is a 13% drop from the 204,581 reported in data the FCA collected for April to June 2015.

Of these, 120,969 pensions (68%) were fully cashed out. Of the pensions that were fully cashed out 88% were small pot pensions.

58,021 pensions (32%) were used to take an income after tax free cash i.e. using partial drawdown, partial Uncrystallised Fund Pension Lump Sum or to buy an annuity.

71% of customers making a partial withdrawal took less than 2% of their pot after tax free cash

The majority of consumers accessing their pensions this quarter stayed with their existing pension provider to do so.

58% of consumers going into drawdown stayed with their existing provider, compared to 64% of annuity consumers.

Pension Wise use was higher among those with smaller pension pots where take up of regulated advisers is lower. On average 17% of consumers told their provider they had used the Pension Wise service.

Tom McPhail, head of Retirement Policy at Hargreaves Lansdown, said:

“In the first six months of this tax year, we have already seen as many people accessing their pensions as we used to see in a typical year before pension freedom. Many aspects of the freedoms are working very well but there are aspects which give cause for concern. Income withdrawal rates are mainly at a prudent level, suggesting that investors are not recklessly running down their savings; annuities are still being purchased, and the full encashments are mainly of the very small pots.

"However, market competition appears not to be working, with fewer annuity purchasers shopping around. We are also concerned about the forthcoming pension tax review: the numbers of people accessing their pensions has increased very substantially; if the government were now to scrap up-front tax relief in favour of tax-free withdrawals, it could remove the remaining brakes on the vehicle and cause the country’s retirement savings system to run out of control.”

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