The number of people accessing their pensions under pension freedom rules fell in 2020/21 according to new data from the Financial Conduct Authority.
Its data shows a 12 per cent reduction in the number of pension plans accessed for the first time over this year.
Its retirement income data also shows annuity sales continuing to fall, as people opt for drawdown options instead in retirement. In total annuity sales were down 13 per cent year-on-year, and many of those are now bought by people over the age of 65.
However, this FCA data also points to high levels of withdrawals – with concerns rising that many people in retirement are taking an unsustainable level of income which risks depleting their pension pot completely in later life. The FCA data showed that on average people were utilising a withdrawal rate of 8 per cent a year – far higher than the 3 to 4 per cent that is often quoted as a sustainable rate of withdrawal.
There has also been a decline in the number of DB to DC transfers, with number dropping by 25 per cent. This follows work by the FCA over a number of years on improving the suitability of advice around DB to DC transfers to ensure good member outcomes.
Canada Life technical director Andrew Tully says: “Today’s data shows a decline in activity over the last year as people have clearly been paralysed by the pandemic, with many opting to wait for a calmer year before making any long-term decisions around their retirement income.
“We can see evidence of this in the number of pension plans which have been accessed dropping by 12 per cent and the number of annuities purchased falling by 13 per cent.”
He adds: “Many people who have opted to make regular withdrawals from their pensions do so at a rate of 8 per cent or more and it is the most popular withdrawal rate for all pot sizes up to £250,000. While for some, this may be a deliberate strategy to deplete pots in a specific time-horizon if they have other assets to fall back on. For others, this may mean they run out of money in the years to come.
“Increased regulatory scrutiny on DB to DC transfers is clearly having the desired effect as activity is down by 25 per cent. Advisers have been stepping away from this market for a number of reasons but we know consumer demand is still there.
“While annuity sales are still down we can see an increasing number people are choosing to purchase one later in life. Perhaps following a hybrid approach of starting with drawdown then gradually de-risking to an annuity. This makes sense as annuity rates improve as we age due to life expectancy and declining health.”
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