FCA

A salutary tale for retiring rural dwellers to note. The full FCA report can be accessed here:

More people are taking out so-called drawdown pensions without taking advice, the City regulator has warned.

The Financial Conduct Authority (FCA) said 30% of consumers go in to drawdown without getting guidance.

That compares with just 5% before the pension freedoms were introduced in April 2015.

It also says that those who access drawdown policies before the age of 65 typically stick with their current provider, rather than shopping around.

Drawdown pensions allow people to withdraw as much money as they like at any one time.

The FCA said twice as many consumers are now using drawdown rather than annuities, which provide a fixed income for life.

It is also worried that too many annuity providers are leaving the market, which it said could bring a risk of weakened competition.

The FCA said that withdrawing money from pension pots had become “the new norm”.

However, the pensions industry has disputed that claim.

According to the Association of British Insurers (ABI), 100,000 people take money out of their pension pots every quarter.

But that is small compared to the 4.7 million people over the age of 55 who leave their pots untouched, the ABI said.

The FCA report said that 52% of fully-withdrawn pots were not spent, but were put into other savings or investments.

Some of this was due to “a lack of trust in pensions”, it said.

Only a quarter of people withdrawing cash spent some or all of it.

“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 said.

Of those who took all the money out of their pension pots since 2015:

32% put the money into Isa accounts or other savings plans

25% spent some or all the cash – for example, on home improvements or a car

20% invested the money elsewhere – in property, shares or other businesses

14% used the money to pay off debts 9% unknown

As a result some consumers may be paying too much tax, or missing out on investment growth, the FCA said.

The FCA is considering asking the government to allow consumers to access pension savings early, while continuing to pay full contributions into their existing pension plan; and make it easier for people to compare – and shop around for – drawdown policies.