Originally sent on 10 September 2018
Our thoughts on the FCA’s Retirement Income Data Bulletin
The latest retirement income data bulletin, published last week, provides data from the second half of 2017/18; from 1 October 2017 to 31 March 2018. Broadly speaking, the data shows that consumer behaviour has not changed significantly compared to the same period in 2016/17. The drawdown market continues to grow and outpace annuity sales, although annuity sales volumes have stabilised, with a 1% increase this year.
The number of fully withdrawn pensions fell by 9% compared to the same period in 2016/17, although the average value of £14,500 stayed almost the same. Previous research showed that the majority of consumers withdrawing whole pensions were accessing small pots which were not their main source of income, allaying fears that the pension freedoms would result in significant volumes of consumers withdrawing their pensions entirely and running out of income in retirement. However, there was still a concern that later groups of consumers would go on to withdraw larger pots, particularly as more and more consumers retired with the majority of their retirement funds in defined contribution plans. Although it’s still early days for the pension freedoms, these figures suggest that so far this fear is unfounded, and consumers are still primarily using full withdrawals to access small pots.
The data indicates that the majority (60%) of drawdown sales were to what the FCA has called ‘zero-income drawdown’, whereby the consumer has taken their tax free cash but not since withdrawn any taxable income payments. It remains a strange fact of the pension freedoms that one of the most popular courses of action – to withdraw tax free cash only – is one that was available to consumers before the rules changed.
The paper states that the FCA remains concerned about the one-third of consumers who are entering drawdown without taking advice, due to the risks of managing drawdown. However, 69% of consumers do take advice before entering drawdown, which is significantly higher than the percentage taking advice before taking a UFPLS (30%), fully withdrawing a pension (25%) or purchasing an annuity (28%). It seems equally as concerning that two-thirds of consumers purchase annuities without taking advice, as those consumers will have no opportunity to change their situation if the annuity turns out to be a poor choice. Those who enter drawdown without advice, many of whom will not have taken income yet, still have much more flexibility: they can still change their investments, move to a different drawdown product or purchase an annuity if it is more suitable for them to do so.
Interestingly, the data shows that the number of consumers accessing Pension Wise in the last year has increased significantly among consumers purchasing annuities, but decreased among those fully accessing their pension pots or taking UFPLS payments. The volumes have stayed broadly the same for those accessing drawdown. If the FCA can investigate the reason behind these changes it could help shape future proposals for driving better consumer engagement.