From the blog: The Financial Conduct Authority’s latest Retirement Outcomes Review presented some interesting statistics, particularly for those of us in the business of designing pre-retirement investment strategies.
More than a million defined contribution pots have been accessed since pension freedoms were implemented in 2015. We also discovered that 72 per cent of those were accessed by people under 65; 53 per cent of pots accessed were fully withdrawn; and 90 per cent of those accessed were under £30,000.
For me, three conclusions of particular note can be drawn from these figures.
The Financial Conduct Authority’s latest Retirement Outcomes Review presented some interesting statistics, particularly for those of us in the business of designing pre-retirement investment strategies.
Over a million defined contribution pots have been accessed since pension freedoms were implemented in 2015. We also discovered that 72 per cent of those were accessed by people under 65; 53 per cent of pots accessed were fully withdrawn; and 90 per cent of those accessed were under £30,000.
For me, three conclusions of particular note can be drawn from these figures.
Addressing these concerns will require cooperation across government, regulators, industry and consumer bodies
Restore trust in pensions
Firstly, many of the people choosing to access their pension pots at this stage will have an existing defined benefit pension to rely on for retirement. While it’s not surprising that DC pots are seen as a ready source of cash, this is likely to change pretty quickly as the new 'DC generation' comes of retirement age.
Secondly, and worryingly, consumers who fully withdrew their pots did so partly out of a lack of trust in pensions.
Where people are accessing their pots fully, more than half of these are being transferred into other savings or investment products that are likely to have either low interest rates or high charges.
People are therefore willing to make these sacrifices, and lose out on employer contributions, simply to bring their money under their own 'control'.
All this suggests there is still significant work to do in the industry to improve understanding and highlight that pension saving does not mean simply handing over all control of your money.
The drawdown maze
Finally, what scared me most was that the proportion of drawdown bought without advice has risen to 30 per cent, compared with 5 per cent before pension freedoms.
The FCA has rightly made it clear this needs to be addressed, as many of those now choosing drawdown will likely be ill-equipped to deal with the raft of complex decisions expected of them when choosing their strategy.
After all, most will have previously paid the minimum contribution rate, followed the default strategy and retired at the default age.
As the FCA acknowledges, addressing these concerns will require cooperation across government, regulators, industry and consumer bodies. Until then, many more members will pass into unsuitable products or glide into potentially fruitless strategies, leaving them dependent on the state pension.
We as an industry need to tackle this issue as soon as is practically possible. We should aim to give as much support as we can to members while they are still within workplace pension schemes, to help prepare them for the post-retirement maze that awaits.
Rona Train is head of DC governance at Hymans Robertson.
