Summing up the Financial Conduct Authority’s (FCA) latest figures, Tom McPhail, head of retirement policy at Hargreaves Lansdown, said: “Broadly, cash withdrawals are twice as popular as drawdown and drawdown is twice as popular as annuities.”
Advice gap
Consumers going into drawdown are more likely to seek financial advice than those buying an annuity, the FCA found.
Two thirds of drawdown customers sought financial advice, compared with only a third of annuity holders.
“People have the freedom to spend their retirement money as they see fit, but they also need to recognise and accept the implications of making their money last for the whole of their retirement.”
Nearly half of those opting for a full withdrawal used a regulated adviser, slightly ahead of customers taking an uncrystallised fund pension lump sum (UFPLS).
Andrew Tully, pensions technical director at Retirement Advantage, is concerned about the lack of shopping around for the best deal. “The message is clearly not getting through so we need to find a way of breaking this cycle. We need to think more radically, as the pension freedoms should not be licence for people to receive poor value from their retirement choices.
“The issue here is to help people get advice. There is a strong correlation between those people who do receive financial advice and the number of people who shop around. I think its high time we had a debate about the merits of introducing a form of compulsion in shopping around.”
Glass half full
Taking a more upbeat view, Steven Cameron, pensions director at Aegon UK, said that “it’s encouraging that almost two thirds of those using flexible access drawdown are seeking advice”.
However, citing recent Aegon research on the risks of entering drawdown without advice, he added that “a third of retirees are leaving themselves exposed to the risk of running out of money”.
“More worryingly, it is much less common for those using the UFPLS route to seek advice. The considerations, when accessing a pension through UFPLS, are identical to flexible access drawdown and more needs to be done to highlight the value advice can add.”
