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Confusion, withdrawals & freedoms: 15 FCA facts about pensions

The Financial conduct authority has released its findings from its 2017 Financial Lives survey, which specifically examined the pensions and retirement income sector.

A third of people have no private pension provision

Perhaps shockingly, the FCA found that a third of all UK adults, including current retirees, report having no private pension provision. 

AMong those contributing to a pension, 53% have not reviewed how much their pension pots are worth in the last 12 months.

The propensity to review increases with pot size, the regulator found, with the tipping point around a pot greater than £20,000. 

A third of people have no private pension provision

Perhaps shockingly, the FCA found that a third of all UK adults, including current retirees, report having no private pension provision. 

AMong those contributing to a pension, 53% have not reviewed how much their pension pots are worth in the last 12 months.

The propensity to review increases with pot size, the regulator found, with the tipping point around a pot greater than £20,000. 

Consumer knowledge and engagement with pensions is poor

A third (32%) of defined contribution (DC) pension holders and a quarter (26%) of people 55 and over and not retired said that they do not know the size of their pension savings.

Meanwhile, 45% said that they do not give their pension much thought until they are two years from retirement, commonly citing that they never have enough time.

Just over 80% of people with a DC pension said that they have not given much thought to how much they should be paying into it to maintain a reasonable standard of living when they retire. 

Pension freedom (pt.1)

Every six months, 300,000 pots have been accessed for the first time since the introduction of the pension freedoms in April 2015. 

Pension freedom (pt.2)

In the six months that followed the introduction of this initiative alone, the FCA's data showed that more than 415,000 pension pots were accessed for the first time. 

 

Pension freedom (pt.3)

Since October 2015, around 250,000 to 315,000 pots have been accessed in each six month period. 

The first half of the financial year (April-September) typically sees more pots than being accessed than the second half. 

 

Potential retirees are uncertain about their options

The FCA's data has highlighted 'a lack of understanding' and 'confusion' about retirement income options.

25% of people who had accessed a DC pension in the last two years reported that they get an income or have taken a cash lump sum but are not sure how this actually works.

There is also confusion about how each product works. 

 

Product confusion

Product confusion is rife. Only six in ten people (59%) knew that a single life annuity would give them a guaranteed income for the rest of their life.

11% thought that there was a risk that the value of their fund could go up or down.

In addition, less than half (46%) of consumers who made a retirement income decision in the last two years thought about their health or life expectancy.

Withdrawal symptoms (pt.1)

More than half of all pension pots accessed are full cash withdrawals, but only 17% of consumers who have accessed a pension pot report fully withdrawing their pension pot in the last two years.

 

Withdrawal symptoms (pt.2)

The FCA's data showed that 55% of all pots accessed since the pension freedoms had begun were taken as full cash withdrawals.

Moreover, its survey showed that 17% of adults say that they have fully withdrawn their pension in the last two years.

The FCA said:

'This difference may be explained both by those who are uncertain how they accessed their pot and and also that consumers may cash in multiple smaller pots.'

'Smaller pots are most likely to be taken as full cash withdrawals, with 88% of pots fully withdrawn totalling less than £30,000.'

Out with the old, in with the annuity? (pt.1)

Maybe. There is conflicting data here.

Since the pension reforms, there has been an increase in the number of pension pots entering into drawdown.

30% of pots accessed since October 2015 have gone into drawdown and 12% taken as an annuity. 

Out with the old, in with the annuity? (pt.2)

However, the FCA's data from its Financial Lives Survey data shows that 20% of adults say they took out a drawdown product and 29% an annuity.

Worryingly, a quarter of people do not recall how they accessed their pension pot which may account for these differences.

The FCA said:

'These data emphasise the uncertainty and lack of engagement among consumers about their retirement income choices.'

Charged more than they thought

FCA data shows that seven in 10 (71%) of UK adults with a DC pension scheme were not aware of any charges on their pension.

Meanwhile, six in ten (61%) 45-54 year olds with a DC pension were not aware of any charges on their DC pension plans.

The FCA said:

'This compares favourably with three quarters (75%) of those aged 35-44 who do not know what they are paying in charges. A significant proportion [48%] of those who have taken advice in the last 12 months also do not have awareness of any charges on their pension.'

It's a question of trust (pt.1)

Trust and satisfaction levels among defined contribution pension holders reflect their levels of engagement with their pension.

The FCA said:

'Over a third (36%) of adults with a DC pension rated their satisfaction as low with their defined contribution pension provider.'

It's a question of trust (pt.2)

People who had retired and still accumulating a pension have generally higher levels of satisfaction than those still working, which arguably reflects the receding availability of attractive defined benefit (DB) pension schemes.

Meanwhile, in the DC world, a quarter (24%) of defined contribution pension holders could not say whether they are satisfied or dissatisfied with their pension provider.

According to the FCA, a third (34%) of DC pension holders stated they have low levels of trust in their DC pension provider.

The FCA said:

'Once again this is less likely for those who have retired, who have greater levels of trust than younger people still working. This reflects the low levels of engagement among those still at work. A further quarter (23%) of defined contribution pension holders, including those who have retired, do not know enough about their provider to comment.'

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