16th September 2015
More than 200,000 pension policies have been accessed in the first three months of new freedoms over how retirees use their funds, official figures reveal.
The Financial Conduct Authority data (see infographic below) shows that between 80% and 90% of people could access their pension through drawdown or uncrystallised fund pension lump sum (UFPLS) without needing to transfer providers.
However, the watchdog says that in practice a majority of consumers (particularly those seeking drawdown) need to transfer to a new contract within their existing provider to access their money in their preferred way It says that while firms are continuing to develop new options for their customers, with many expected to be available within the next six months, many consumers will continue to have to transfer to a new contract when accessing their pension savings.
Tom McPhail, head of pensions research at Hargreaves Lansdown, says: “Previous reports have under-stated just how significant these changes are proving to be. We now know that investors are behaving radically differently compared to just a few months ago.
“Investor demand for non-annuity retirement incomes, in the form of drawdown and one-off lump sums, now dwarf sales of annuity arrangements. It is perhaps too early to be sure that this is a permanent shift but it is starting to look that way.
“It is also remarkable to note that over 200,000 people have already used the pension freedoms (204,581) in the first three months; this is a massive increase compared to transactions in previous years which would typically have been around 80,000 for a three month period.”
The FCA data shows that 71,581 drawdown arrangements were accessed in the first 3 months of pension freedom.
This is substantially higher than the 19,000 reported by the ABI, possibly because the ABI data does not cover some providers (including Hargreaves Lansdown.
The FCA data also shows that just 10% of investors had an appointment with Pension Wise. Tom McPhail says: “Pension Wise provides an important independent service for investors but it is only a small part of the landscape. Further steps need to be looked at in the context of the pension freedoms and the financial advice review, to ensure all investors get access to good quality help with their pensions.’
Separately, the government has also announced today that responsibility for Pension Wise is being passed from the Treasury across to the DWP.
“We had expected this transfer to take place. The Treasury deals with the financial services industry whilst the DWP is more concerned with welfare, so Pension Wise sits more naturally within the DWP’s responsibility,” McPhail adds.
The FCA data also showed that whilst 88% of pension investors faced no exit charges, for around half a million pension savers, penalties could exceed £1,000.
Tom McPhail says: “The Treasury will be taking a close look at these numbers to see whether there are grounds to intervene on investors’ behalf. An exit penalty of over £1,000 is hard to justify in the new world of pension freedoms.”