18 Jul 2017

People warned about dangers of drawing pension without advice

People warned about dangers of drawing pension without advice

More people are taking their pension cash in the drawdown option without getting advice, the Financial Conduct Authority has warned.

The City regulator has been carrying out the first major comprehensive study into how the retirement income market is changing since the pension freedoms of 2015.

The review found that accessing pension pots early has become ‘the new norm’. Almost three-quarters of pots that have been accessed are by consumers under 65. Most are choosing to take lump sums, rather than a regular income.

More than half of pots accessed have been fully withdrawn. However the fully-withdrawn pots are mostly small with 90% below £30,000.

The FCA has also discovered that drawdown has become much more popular. Twice as many pots are moving into  drawdown than annuities.


The review identified five issues:

  • Over half of fully-withdrawn pots were not spent, but were moved into other savings or investments. Some of this is due to a lack of public trust in pensions. The FCA said this can result in consumers paying too much tax, missing out on investment growth or losing out on other benefits.
  • Consumers who access their pots early without taking advice typically follow the ‘path of least resistance’, accepting drawdown from their current pension provider without shopping around.
  • People are increasingly accessing drawdown without taking advice. Before the freedoms, 5% of drawdown was bought without advice compared to 30% now. The FCA said drawdown is complex and these consumers may need more support and protection.
  • Providers are continuing to withdraw from the open annuity market, which could bring a risk of weakened competition over time.
  • Product innovation has been limited to date, particularly for the mass market.

Christopher Woolard, executive director of strategy and competition at the FCA, said: “Since the introduction of the pension freedoms, the retirement income market has changed substantially. This study looks at what has happened during this time, and gives us an early view of areas to keep a close eye on.

“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 co-operation 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.”

The FCA is inviting feedback on the initial findings and aims to publish a final report in the first half of 2018.

Pension advice

Following sweeping pension reforms in 2015, there is more scope than ever to arrange your finances the way you want them.

For example, you can now continue to work and take some of your pension benefits – and can even access your entire pension savings and draw up your own investment strategy.

That flexibility is great, but there is a lot to weigh up when considering whether to touch your pension. It may be in your best interests to stay in your defined benefit scheme - obtaining professional advice is therefore crucial.

Aberdein Considine’s independent financial advisers - who are authorised and regulated by the Financial Conduct Authority (FCA) - can guide you through the pension maze and help you tailor a plan to your circumstances.

Click here to find out how we could help you.

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