Rise in savers withdrawing pension funds without advice

The introduction of pension freedoms has seen an escalation in savers entering into pension drawdown arrangements without professional advice, raising concerns that they risk running out of money to fund their retirement, the Financial Conduct Authority (FCA) has warned

The latest FCA report on retirement income trends shows that in 2018/19, nearly half (48%) of plans were accessed without advice or guidance being taken by the plan holder. For 37% of plans that were accessed, the holder did take regulated advice while 15% took guidance from the government’s free Pension Wise service. 

For around 45% of plans where the holder bought an annuity or took a partial lump sum withdrawal, they received no regulated advice or guidance. The figures were even worse for those who withdrew all their pensions savings at one time, with only one in four taking an advice before taking the pension windfall.

FCA analysis shows that taking advice generally increases depending on the size of the pension pot. While 70% of consumers with pot sizes of £100,000 and over sought regulated advice, only 20% of those with less than £10,000 in pension savings did.

Most of the pots being fully withdrawn were small pots – nearly 90% had a value of less than £30,000 and 63% less than £10,000. By contrast, larger pots were mainly accessed via drawdown. Three quarters (75%) of pots over £100,000 that were accessed in 2018/19 went into drawdown but were not fully withdrawn (85% of those with value over £250,000).

The FCA’s biggest concern is signs that the number of people accessing advice is getting worse, with 34% taking no advice whatsoever, up from 31% the previous year. 

The regulator stated: ‘We are particularly concerned about non-advised drawdown sales because of the risks of managing drawdown.’

The FCA data shows that even for younger plan holders there were significant withdrawals at rates of 8% and over - 44% of withdrawals for the 55 to 64 age group were at this rate. Just over half of all regular withdrawals were by plan holders aged 65 to 74 and 35% by those aged 55 to 64.

Keith Richards, CEO of the Personal Finance Society, said: ‘It is deeply concerning how many people are pulling all their cash from their pension pots without advice or guidance, and the potentially catastrophic poor outcome for thousands of consumers must be acknowledged as a failing of government and regulator to deliver clear guidance for the public.

‘The FCA is right to be concerned about non-advised drawdown sales because of the risks of managing drawdown, but what was expected when the public message was “it is your money, you are free to do what you what without restriction”?  

‘The Personal Finance Society would like to see the government and the FCA do more to make sure providers are signposting guidance services and advice and explaining the potential ramifications if you don’t seek assistance.’

Richards pointed out that consumers with small pension pots, who are the ones least likely to seek advice, should not be assumed to be people without other assets or complexities, who could have benefitted from professional guidance.

‘We need to ensure people don’t see pension freedoms as an opportunity to buy a Lamborghini. We want to make sure that nobody ends up making the wrong retirement income choice,’ he said.

The FCA report also found that the number of transfers from defined benefit schemes into defined contribution plans, which has been another area of concern, has slowed.

The number of transfers in the second six months was down 24% on those in the first six months and noticeably lower than seen in the six months from October 2017 to March 2018.

The regulator says this decline could be due to a range of factors, including a greater awareness of the risks of transfers as a result of increased media attention and FCA supervisory activity.

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