CONSUMERS accessing their pension pots early has become “the new norm” according to City watchdog the Financial Conduct Authority (FCA), which says that most are choosing to take lump sums rather than a fixed income for life.
The FCA says almost three-quarters (72 per cent) of pots have been accessed by consumers under 65 and 53 per cent of them have been fully withdrawn.
However, the regulator is highlighting potential problems stemming from the pension freedoms that were introduced in April 2015, warning that many savers are abandoning their pensions and record numbers are moving into drawdown without taking advice.
Almost a third (30 per cent) of savers who go into drawdown – where they can withdraw as much as they like from their pots – do so without taking advice, compared to just five per cent before the freedoms came into effect.
In a report yesterday, the FCA said 52 per cent of fully-withdrawn pension pots were not spent but were instead put into other savings or investments, some of it because of “a lack of trust in pensions”. It added that only a quarter of people withdrawing cash spent some or all of it.
It said: “Contrary to the concerns expressed before the pension freedoms, we did not find that most consumers spent this money on consumer goods and services such as cars and holidays.”
The report showed that of those who withdrew since the reforms were introduced, 32 per cent put the cash into Isa accounts or other savings plans; a quarter spent some or all the cash; a fifth invested it elsewhere, such as in property, shares or other businesses; 14 per cent used the cash to pay off debts; and nine per cent used it for an unknown purpose.
The regulator explained that as a result some people could be paying too much tax, or be missing out on growth in their investment.
The FCA said it was considering asking the government to allow consumers to access pension savings early, while continuing to pay full contributions into an existing pension plan and to make it easier for them to compare and shop around for policies that allow them to drawdown cash.
It said it was worried that too many annuity providers were leaving the market, which it said could bring a risk of weakened competition – a claim that the pensions industry disputed.
The Association of British Insurers (ABI) said around 100,000 people took money out of their pension pots every quarter, which it said was small compared to the 4.7 million over-55s who leave their cash untouched.
Christopher Woolard, the FCA’s executive director of strategy and competition, said: “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.”
One pensions expert expressed his concern about the possibility of the FCA planning to intervene in the market.
Tom McPhail, from Hargreaves Lansdown, said: “This report looks like a regulatory cry for help; the FCA seems to be trying to put the pension freedom genie back in the bottle.”
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