27m Per Day Pension Withdrawals

£27m Per Day Pension Withdrawals.

Figures released by the Association of British Insurers (ABI) suggest that the total amount withdrawn from pensions using the new freedom of pensions flexible drawdown has hit £2.5 billion.

This equates to £27 million per day since the new flexible drawdown rules started in April 2015.

Despite this increase in flexible pension options and the decrease in appeal of guaranteed annuities i.e.  a guaranteed income for life, roughly 55% of all retirement options were taken in the form of drawdown and 45% chose to buy an annuity.

Surprisingly, 55% of all annuity purchases were made with the existing pension company.  This means that people are not shopping around or that their option to be able to shop around has not been made clear enough by the existing pension company.  We expect the financial services industry regulator, the Financial Conduct Authority (FCA) will not be best pleased with those figures and will pass even tougher regulations forcing pension companies to be clearer and explain to their clients that they have the right to an open market option.  The first signs of this have already been seen with the regulator investigating the amount of commissions that have been paid between pension companies where no advice has been given and an annuity has been purchased (see this week's annuity story).

We worry for pension savers given that they are now in drawdown and these numbers will increase that they do not fully understand the risks involved.  For example if a pensioner had opted for flexible drawdown and invested most of their money in China funds, they could have lost up to 40% of their pension fund value in a matter of weeks.  Whilst not as extreme pension savers invested in the UK, Europe or North American stock markets for their drawdown plan could have seen the value of their pension fall by around 15% recently.  This highlights the need for professional, regular investment portfolio advice when you decide to use flexible pensions drawdown rather than purchase an annuity.  Take a look at our ongoing money MOT advice service.