In September 2015, the Financial Conduct Authority (FCA) issued data regarding consumers’ use of the recently introduced pension freedoms.
There has been much publicity about some providers imposing prohibitively high exit charges before customers can make a withdrawal from their pension fund, or switch to another provider. But based on an analysis of 23 providers, the FCA has revealed that 84% of customers have not been charged such a fee. For a further 9%, the fee charged was less than 2% of the fund. Less than 4% of customers have been hit with fees in excess of 5%. The average time taken to process a transaction was 16 days.
The Government is conducting its own consultation on the issue of pension exit fees.
Of the 204,581 people who have accessed their pension savings between April 6 2015 and July 5 2015 (the period covered by the survey):
• 57,568 (28.1%) made a full cash withdrawal of their fund (this is the new Uncrystallised Fund Pension Lump Sum or UFPLS option that became available in April)
• 53,543 (26.2%) made a partial withdrawal via a drawdown policy
• 43,094 (21.1%) used the small pots payment method – full cash withdrawal of a pension pot worth £10,000 or less
• 17,912 (8.8%) fully encashed their fund via drawdown
• 16,872 (8.2%) withdrew just the tax free lump sum of 25% of the fund as cash
• 12,418 (6.1%) purchased an annuity – this figure is less than one seventh of the number of annuities purchased in the equivalent time period in 2013
• 3,154 (1.5%) made a partial cash withdrawal via UFPLS
• 20 purchased a third way annuity
This means 120,688 (59%) made some form of cash withdrawal and 71,455 (34.9%) used some form of drawdown.
Of the providers surveyed, 61% said they might accept ‘insistent client’ pension transfer business, where a client receives advice from a financial adviser but then chooses to take a different course of action, but would consider the circumstances of the case first. For example, if the ceding pension scheme has any form of safeguarded benefit, then this might be a reason for refusing the business.
Only 9% would automatically accept these cases, while 30% said they would not consider them at all.
The topic of insistent clients has become more relevant with the introduction of the pension freedoms as any client wishing to switch funds of £30,000 or more from a final salary scheme to a money purchase scheme (so that they can benefit from the increased withdrawal flexibility) has to take professional advice. The FCA has indicated it is comfortable with advisers processing insistent client transactions provided a set procedure is followed.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.