The Financial Conduct Authority (FCA) has published its latest data on how customers are accessing their pension funds. Its figures cover the third quarter of 2015, and are based on figures from 95 pension and retirement income providers that collectively represent 95% of pension plan assets.
Between July and September 2015, 178,990 pension plans were accessed by customers in some way, a reduction of 13% on the second quarter figure of 204,581. 120,969 pension plans were fully cashed out, although this includes customers who are already accessing their pension prior to the second quarter, and then chose to cash out during the second quarter. The FCA has thus corrected an erroneous statement it issued earlier, when it said that 68% of customers were fully cashing out their pensions (a percentage arrived at by dividing 120,969 by 178,990). 88% of the full cash withdrawals were of ‘small pots’ worth £30,000 or less, and only 4% of the full withdrawals were of more than £50,000.
The proportions of customers using each of four methods of accessing their funds were:
• 60,600 (34%) made use of the Uncrystallised Fund Pension Lump Sum (UFPLS) method to make a partial or full withdrawal
• 54,604 (30%) used a drawdown plan to partially or fully access their funds
• 23,385 (13%) purchased an annuity
• 40,401 (23%) made a full withdrawal of a small pot
The annuity figure is significantly higher than that reported in the FCA’s data for the first quarter. However, this may not mean that more annuities are being purchased, as the FCA says that some firms previously mis-interpreted the regulator’s instructions and under-reported the number of annuities sold.
One statistic in the report that has worried consumer groups is that only 32% of customers whose plan offered a Guaranteed Annuity Rate took up this guarantee. In some cases, customers accessed their funds before the minimum age at which the GAR applied. However, most of the GARs given up applied to smaller pots – when we look at pots worth more than £30,000, then a majority (59%) of GARs are being used.
Generally speaking, those using the UFLPS method are not making large withdrawals. 71% of partial withdrawals were of less than 2% of the total fund. However, those aged 55-59 are the most likely to make a larger withdrawal, when intuitively it might be expected that the youngest pensioners would make the smallest withdrawals, as their pension monies need to last the longest. 27% of customers in the 55-59 age group withdrew more than 10%, and most of these individuals will expect their retirement to last for much longer than 10 years.
Unsurprisingly, customers with larger pension pots are more likely to take regulated financial advice on their options. A majority of customers (58%) entering drawdown, and 37% of annuity purchasers, sought this type of advice. 17% of customers used the free Pension Wise guidance service.
Many customers are still not shopping around. 58% of those entering drawdown did so with their existing pension provider, while 64% of annuity purchasers took the offer made by their pension provider.
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.