The latest data from the Financial Conduct Authority shows a continued decline in the numbers of people purchasing an annuity with their pension savings.
The total number of pension plans accessed for the first time in the 2019/20 financial year was 673,831, which represents a 3% increase on the figure for 2018/19.
69,519 plans (10.3% of the total) were used to purchase an annuity. The total number of annuity purchases fell by 6% over the previous 12 months.
Withdrawing the entire plan remains easily the most popular way of accessing retirement savings, as this happened on 375,530 occasions in 2019/20, representing 55.7% of the total. This also appears to be an increasingly popular option, as the number of full withdrawals increased by 5% compared to the previous year. However, there is still little evidence that pensioners are either wastefully spending large sums in one go; or might simply be transferring significant pension pots to low interest bank accounts, as around 90% of the full withdrawals were for pots worth £30,000 or less. A large proportion of the full withdrawals are still made by those in the 55-64 age group as opposed to older age groups.
197,118 plans entered some form of drawdown arrangement, while not being fully withdrawn. This figure represents 29.3% of the total number of accessed plans. 194,158 plans entered drawdown in 2018/19, so the figure for the most recent year represents an increase of just 1.5% – this is in effect a real-terms decrease in the popularity of drawdown given there was a 3% increase in the total number of plans being accessed.
There appears to be some evidence of an increase in popularity of the Uncrystallised Funds Pension Lump Sums (UFPLS) option. These allow a person to take their uncrystallised pension funds in one go, or as a series of lump sums, without entering a formal drawdown arrangement or purchasing an annuity. 31,664 plans were accessed via the UFPLS method in 2019/20, representing 4.7% of the total, and an increase of 18.4% on the numbers using this method in 2018/19.
Amongst those with pots of less than £10,000, almost 90% of people chose the full withdrawal option.
For pots of between £10,000 and £30,000, around 60% chose to fully withdraw, but now we see as many as 25% choosing drawdown.
By the time we reach the £30,000 to £50,000 bracket, drawdown has become the most popular option, favoured by more than 40%.
Drawdown is then chosen by almost 60% of those with pots of between £50,000 and £100,000, with the popularity of full withdrawal declining below 20%.
Drawdown was favoured by more than two-thirds of those with pots of between £100,000 and £250,000 and more than 80% of people with pots of more than £250,000.
36% of savers accessing their retirement savings in 2019/20 received professional financial advice before doing so – this figure is unchanged from the previous year. Of those receiving advice 18,171 purchased an annuity, 126,184 (more than 50%) entered drawdown, 10,235 used UFPLS and 84,834 made a full withdrawal.
Given the last financial year ended on March 31 2020, these figures do not show what the impact of the Covid-19 pandemic might have been on the way people access their retirement savings.
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 of the facts, circumstances or legal position may change after publication of the article