Retirement reforms could add up to a three part tragedy

21st January 2016


Earlier this month the Financial Conduct Authority published their retirement income data for the period July – September 2015.

Steve Herbert, Mindful Money columnist and head of benefits strategy at Jelf Employee Benefits takes a look at the numbers…

These figures represent only the second quarter post implementation of Pension Freedoms – so are not necessarily a good indicator of long term trends  – yet the findings are really rather concerning.

The headline message is that of the 178,990 pensions accessed in this period, 120,969 funds were fully cashed out by the consumer.  Yes – astonishing as this sounds – less than 1 in 3 of the pension funds accessed were used to provide a “traditional” retirement income.

Yet that is not the only worrying data in the report, as this quotes highlights;

“The majority of customers across all products stayed with their existing pension provider when they accessed their pension.”

With the report going on to highlight that 64% of consumers who purchased an annuity remained with their existing provider.  And when it came to the use of Guaranteed Annuity Rates (where still available), 68% were not taken up.

So my broad summary of the figures is as follow:

Now three wrongs do not make a right.  I accept that there are some mitigating factors which may have weighted the findings.  Pent-up encashment demand from the period prior to the legislation change, nominal fund levels representing the majority of full encasements, and limitations imposed to secure guaranteed annuity rates will all have a part to play in these statistics.

Yet this should not serve to misdirect the reader from a sorry set of figures which, even at this early stage, suggest that pension savings are being used for financial needs other than securing a long term retirement income.  And even where they are being used to purchase an annuity, the reality is that the best deals are probably being overlooked by the consumer.

These are distinctly worrying findings, and if repeated this should ring alarm bells in Whitehall and beyond.  Let us hope that the next quarter statics, the third since the reforms were imposed, show a much improved picture.

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