Latest FCA findings: almost half of pensions accessed without regulated advice or guidance.

hand holding a pen

The FCA has released new data showing the actions that individuals have taken the first time they access a pension pot. It collected the data from all regulated firms that provide retirement income products during 1 April 2018 to 31 March 2019.

Key findings include;

  • In total, 646,530 pensions were accessed for the first time to either buy an annuity, move into drawdown or take a cash withdrawal
  • 55% (354,844) of pensions were fully withdrawn
  • 30% (190,971) of pensions not fully withdrawn entered into income drawdown
  • 11% (73,977) of pensions were accessed to purchase an annuity which have continued to decline steadily as a proportion of all pension withdrawals
  • 4% (26,738) of pensions were accessed to take partial lump sum payments from uncrystallised funds (UFPLS)
  • Almost half (48%) of pensions were accessed without regulated financial advice or guidance being taken
  • For pensions that entered income drawdown, 34% of plan holders did not take regulated financial advice although 9% received Pensions Wise guidance
  • Less than half (46%) of pensions going into income drawdown were sold to new customers, rather than to existing customers with the firm.

Jonathan Watts-Lay, Director, WEALTH at work, comments;

“These findings highlight the continuing popularity of freedom and choice in pensions amongst individuals.”

He adds; “As the findings show, many individuals are now moving away from purchasing an annuity towards income drawdown. Whilst this option brings much more flexibility, the downside is that without the expertise of how to manage this appropriately, it can be easy for employees and pension scheme members to make poor decisions which can create a permanent dent in their retirement income. For example this could include paying more tax than necessary, underestimating how long their retirement savings will need to last, falling victim to a scammer or making ill-judged investment choices.”

Watts-Lay warns; “These risks are likely to be heightened by the many individuals failing to seek regulated financial advice when accessing their pensions. Many don’t realise that when they buy retirement products, there are charges deducted which can cost just as much, if not more, than getting regulated financial advice. Studies have shown that those who take regulated financial advice are more likely to increase their wealth than those who do not.”

Watts-Lay comments; “Alarmingly, the findings indicate that many individuals are failing to shop around when purchasing income drawdown. Without shopping around, employees and members could be at risk of not getting the best deal and end up with potentially less money in their pocket every month in retirement than what could have been the case. For instance, the charges may be higher than alternative options and the choice of investments may not be appropriate for their needs.”

He explains; “For example, Which? found last year that the difference between the cheapest and most expensive drawdown plans was a staggering £12,000 lost in charges over a 15 year period.”

He comments; “All these findings demonstrate why the provision of financial education, guidance and regulated financial advice by a reputable provider is more important than ever, and why employers and Trustees need to do everything in their power to ensure that the right level of support is provided to all employees and scheme members when they need it.”

For further coverage please see Personnel Today.

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