64% of consumers fail to shop around for an annuity says FCA
The FCA has today published its latest Retirement Income Market Data which covers 95% of the defined contribution contract based pension scheme assets.
In the quarter July to September 2015 178,990 pensions have been accessed by consumers to take an income or fully withdraw their money as cash.
• 60,600 (34%) used uncrystallised fund pension lump sum (UFPLS) (both partial and full withdrawals)
• 54,604 (30%) used income drawdown (both partial and full withdrawals)
• 23,385 (13%) were used to purchase an annuity
• 40,401 (23%) were full withdrawals using small pot lump sum payments
This comes on top of 204,581 who accessed their pensions in the first quarter of 2015/16, giving a total of 383,571 people who have accessed their pensions since the start of the tax year.
The data shows that 84% of investors are taking prudent levels of income withdrawal but annuity shopping around is getting worse not better with 64% of annuity customers staying with their existing pension provider. Take up of Pension Wise was still very low at 17%.
Tom McPhail, head of retirement policy, Hargreaves Lansdown comments: “In the first six months of this tax year, we have already seen as many people accessing their pensions as we used to see in a typical year before pension freedom. Many aspects of the freedoms are working very well but there are aspects which give cause for concern. Income withdrawal rates are mainly at a prudent level, suggesting that investors are not recklessly running down their savings; annuities are still being purchased, and the full encashments are mainly of the very small pots."
He adds a note of caution: "Market competition appears not to be working, with fewer annuity purchasers shopping around. We are also concerned about the forthcoming pension tax review: the numbers of people accessing their pensions has increased very substantially; if the government were now to scrap up-front tax relief in favour of tax-free withdrawals, it could remove the remaining brakes on the vehicle and cause the country’s retirement savings system to run out of control.”
Guaranteed Annuity Rates
Over 68% of guaranteed annuity rate policies (GARs) were not taken up; among small pension pots (under £30,000), 79% were not taken up.
71% of customers taken drawdown or using UFPLS drew income of less than 2% of their fund.
13% drew between 2% income and 3.99%
Just 8% were taking income of between 4% and 9.99% of their fund
10% are taking more than 10% of their fund in withdrawals