Pension freedoms have changed the finances of the over 55s by letting them take cash lump sums from the retirement savings.
Three out of four pension savers between 55 and 65 years old opt to take large cash sums rather than a regular income from their retirement pots.
Taking an income was the norm until pension freedoms began in April 2015, says an interim report into retirement finances by the Financial Conduct Authority (FCA).
What the report says
The report revealed:
- 72% of savers take cash lump sums from their pensions
- 53% of have taken all the cash in their pensions – but most (90%) were worth less than £30,000
- 94% of savers drawing down all the cash in their pensions have other retirement income other than the state pension
- Twice as many pensions are in drawdown than moved into annuities providing a guaranteed income for life
But the report also highlighted some issues for pension savers:
- 52% of withdrawn cash is not spent but moved into other investments or savings that could mean paying too much tax or missing out on investment growth or benefits
- Savers who fail to take professional financial advice tend to leave their money with their pension provider rather than shop around for a better deal
- More savers are shunning professional advice – 30% now compared with 5% before April 2015
- Providers are withdrawing from annuity markets and not launching improved products
Early view of how the market has evolved
Christopher Woolard, Executive Director of Strategy and Competition at the FCA, said: “Since the introduction of the pension freedoms, the retirement income market has changed substantially. This study looks at what has happened during this time, and gives us an early view of areas to keep a close eye on.
“We have identified areas where early intervention may be needed either now or further down the track to put the market on the best footing for the future. Ensuring this market works well will require cooperation across Government, regulators, the industry and consumer bodies.
“We will work closely with stakeholders to make sure we are clear on the actions we are best placed to lead.”