Worrying Evidence Of People Accessing Their Pensions Without Financial Advice
Early signs that people are responding to their new pension freedoms rashly.
According to the Financial Conduct Authority, most of the people that accessed their pension pots in 2016 withdrew the whole amount in one go. 55% of 145,000 pension pot withdrawals in the third quarter of 2016 cashed their entire savings. Group communications director at the financial services advisers Just, Stephen Lowe highlights this as evidence of “a failing system”.
Most worrying to him and others is that the majority of those taking out their pensions are not seeking professional advice. 47% of those withdrawing all their pot used financial advisers. One promising sign is that this is up from the 37% in the last quarter of 2015. The fact that in some areas people seeking advice is trending upwards could be viewed as people starting to get to grips with their new freedoms. However, just 33% of annuity conversions involved professional advisers down from 42% from the last quarter of 2015.
Mr Lowe states that “We don’t know whether customers who have withdrawn their savings are receiving good value from the subsequent investments they have been making as a consequence of this one-time decision.”
What The Solution Will Look Like
The most important change that is needed is that individuals are informed before making decisions that will impact the rest of their life.
Head of policy at L.V., Philip Brown points to “the worryingly low number of people taking advice and exercising choice at retirement”. He calls for the industry to “support consumers and signpost them to advice so they can make informed decisions at such an important time in their lives”.
Mr Lowe added that “behavioural economics shows that defaults work, seeing these figures it is getting harder to justify why Pension Wise is not the default option for all those looking to access their pensions benefits.
Paul Hoskin MD at Hoskin Financial
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