Drawdown beats annuities
Since pension freedoms were introduced in April 2015, there has been a gradual decline in the total number of pension pots being accessed for the first time each quarter.
Tom Selby, senior analyst at AJ Bell, said: “After the inevitable spike following the introduction of the freedoms in April 2015, a new normal is beginning to emerge. Drawdown has replaced annuities as the default option for most savers, with roughly twice as many drawdown policies sold per quarter.
“Full encashment remains by far the most popular option for those accessing their pension for the first time, with almost 300,000 cashing in their entire fund in the 12 months from October 2015. Fewer than half of the people who did this in Q3 2016 spoke to an adviser, although this is up significantly from 29% in Q1.”
Adding that, without more detailed information, “it is impossible to draw any firm conclusions”, Selby acknowledged that “the drop-off in the proportion of people seeking advice on drawdown and annuities is potentially a cause for concern given the complex nature of the retirement decisions they are having to make”.
Worrying development
The marked increase in full cash withdrawals while the number taking drawdown or buying an annuity remains fairly consistent “could be a worrying development”, says Rachel Vahey, product technical manager at Nucleus.
“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.”
She called on the government and regulators to provide more nuanced information about how people are taking their retirement income. “We need to understand if the pots being cashed in are small in value, if people have significant other savings, if people are investing the money somewhere else, or what they are spending the money on,” she said.
“The FCA and the industry needs to continue to monitor these trends. But it’s clear we need a deeper dive into retirement income statistics before we can truly understand how people are reacting to pension freedoms.”
