Pension withdrawal figures released by the Financial Conduct Authority usually have something for everyone. Optimists think it is great that people are exercising their freedom and choice, pessimists worry people are taking too much, too soon.
The latest retirement income market data update includes something that should strike a chord with realists: evidence of a worrying decline in the number of savers seeking professional support before dipping into their pensions for the first time.
Four in 10 (40 per cent) of the 885,445 pensions accessed in 2023-24 were taken with the help of regulated advice or guidance. Five years ago, the figure was well over half (52 per cent).
Yes, many pensions accessed are small pots and full withdrawals. But that was equally true five years ago and since then the trend has been for more and more people to go it alone. Have the complexities and risks declined that much?
What about income drawdown customers – surely the need to choose the right plan, investments and a sustainable withdrawal rate will encourage more use of regulated advice?
Five years ago, advice was taken in a relatively healthy two-thirds (66 per cent) of cases entering drawdown, but that figure has since slumped to just 46 per cent.
Pension guidance – the government’s free, independent and impartial Pension Wise service run by the Money and Pensions Service – is becoming increasingly sidelined too. While the number of pots accessed rose by more than a third (36 per cent) over five years, use of Pension Wise fell by 11 per cent.
In fact, the proportion of pots accessed after receiving guidance has fallen by nearly half in five years, from nearly 15 per cent to under 10 per cent. This is despite high-profile attempts to boost guidance take-up such as TV adverts, better provider communications, improved signposting and the 'stronger nudge' rules introduced in June 2022.
Pension Wise was created as part of the 2015 freedom and choice reforms in recognition that asking people to take on more responsibility and risk in later life is going to require a higher level of information and support. It is a service that is highly regarded by users, but there are too few of them.
The previous government once stated an ambition to make use of guidance ‘the norm’, that it would become a natural step before first accessing pension cash. We seem to be further away from that objective than ever.
Meanwhile, the possibility increases of hundreds of thousands of unsupported pension savers making poor choices; drawing too much, spending too little, failing to consider inflation, taking too much risk, holding too much cash, falling victim to scammers or finfluencers.
None of this should be news to anyone in the pensions world. Surveys repeatedly highlight lack of knowledge and poor confidence among consumers to make pension decisions, with many prone to behavioural biases that compound the risk of financial self-harm.
