Annuity shopping around is getting worse not better; Take up of Pension Wise is still very low; 84% of investors are taking prudent levels of income withdrawal.
Tom McPhail, head of Retirement Policy at Hargreaves Lansdown: “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.
However, 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.”
Key facts: Between July and September 178,990 pensions that were accessed. This comes on top of 204,581 who accessed their pensions in the first quarter of 2015/16, meaning 383,571 have accessed their pensions since the start of the tax year.
- 60,600 (34%) used 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
Of the above drawdown and annuity figures, 3,381 were used to purchase 3rd way products.
Guaranteed Annuity Rates
Over 68% of GARs were not taken up; among small pension pots (under £30,000), 79% were not taken up.
64% of annuity customers stayed with their existing pension provider. The figure was 58% for drawdown.
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
17% of customers said they had used Pension Wise, however when cross referenced with government data here https://www.gov.uk/performance/pension-wise we find that just 8.4% have actually had an appointment with Pension Wise; it is possible the difference is accounted for by users of the Pension Wise website.