The data is notable for showing a huge jump in the number of people accessing their pensions flexibly (either through a drawdown arrangement or by taking a one-off cash payment).
The number of flexible payments in Q1 2016 is roughly twice as high as in the corresponding quarter the previous year and shows a clear deviation from the trend up until that point. The data illustrates how popular this type of retirement income planning has become. It corresponds to a significant decline in annuity sales, indicating that for many people for now at least, drawing cash directly from your pension fund is the new normal. There are a couple of explanations for the jump in the figures: reporting has been tightened up and is now compulsory, where it was only voluntary for the first year. We’d also expect the numbers to accumulate over time, with more and more people reaching an age where this type of financial planning becomes relevant to them. The start of the new tax year is also an obvious trigger for withdrawals for prudent tax planning. Back in 2015, awareness of flexible payments was not as high and not all pension providers were ready in time to meet the demands of their customers.
From a policy point of view there are a couple of issues here. It is important to track not just what people are doing but why they are doing it and what they have got left behind in terms of pension provisions for later years. We’re also concerned about the ongoing failure of shopping around. Many of these investors are using their existing pension provider simply because it is the most available solution; if they don’t shop around they may miss out on better deals and services which are available elsewhere.