Retirement experts have expressed concern over the way people are accessing pension freedoms, describing recent figures from the Financial Conduct Authority (FCA) as 'very worrying'. The data shows that between July and September last year, 120,969 individuals cashed in their entire pension pot, while only 58,021 used the money to purchase an income.
The majority of those withdrawing cash—88%—had savings of under £30,000, which would have provided a relatively small income. Of those taking an income from their funds, 84% withdrew a yield of less than 4%, considered prudent to avoid running out of money. However, more than 24,000 took an income worth over 10% of their savings, a level deemed unsustainable in the long term.
Tom McPhail, retirement specialist at Hargreaves Lansdowne, noted that while many aspects of the freedoms are working well, some give cause for concern. He highlighted that income withdrawal rates are mainly prudent and that people have not been put off buying annuities. However, 64% of annuity buyers stuck with their existing provider rather than shopping around, indicating that 'market competition appears not to be working'.
John Perks, managing director of retirement solutions at LV=, described the figures as 'extremely worrying', warning of a potential 'pensions mis-buying scandal'. The FCA data also reveals that only 17% of those withdrawing money used the government's free Pension Wise advice service. Jon Greer of Old Mutual Wealth said this is concerning as many may not fully understand the tax implications, with withdrawals subject to income tax after the 25% tax-free lump sum.
A Treasury spokesman defended the reforms, stating that two million people have visited the Pension Wise website and that the system is working well, giving people freedom and choice. However, the data also shows that 68% of those eligible for Guaranteed Annuity Rates (GARs), which can offer returns of up to 10% a year, failed to take advantage of them.
