Pensions - Articles - Royal London comments on FCA Retirement Income Data


Commenting on the FCA Retirement Income Market Data, Fiona Tait, Pensions Specialist at Royal London, said:

 In relation to financial advice:
 “It is encouraging to note that the percentage of consumers accessing regulated advice is higher for those utilising income drawdown (58%) compared to annuity customers (37%). Whilr we would strongly recommend everyone making key financial decisions takes financial advice, drawdown clients will possibly benefit the most. They tend to have larger funds to manage and may need to ensure their funds deliver ongoing income over what could be a very long time. A qualified professional adviser is best placed to deliver this.
  
 ABI figures show that the average drawdown fund is just over £69,000, whereas the amount being withdrawn as a cash lump sum is just under £15,000, a level at which financial advice is unlikely to be economic to offer or obtain. For these individuals the Pension Wise guidance service is designed to help people to recognise the risks associated with their chosen course of action; however the FCA figures suggest that only 17% of consumers have utilised it. This is possibly because the decision is seen to be simpler or, as Royal London found in its own research, because many consumers in this bracket had already decided what they wanted to do.”
  
 In relation to shopping around:
 “Although it appears that 58% of drawdown consumers do not appear to have shopped around, the FCA acknowledges that this figure includes those withdrawing all of their money, who would not need to check their options. Many modern contracts are also specifically designed to switch on drawdown with minimum cost and fuss and so remaining with the current provider could mean other providers are not even considered. However, Royal London figures show that 93% of our new drawdown business comes from external sources which indicates that many advisers and consumers are, in fact, considering their options.”
  
 In relation to consumer choice by age group:
 “The figures show that UFPLS and drawdown are, unsurprisingly, being used more by younger consumers. This is a sensible tactic where immediate access is required but people want to retain some flexibility over their income and put off committing to an annuity until later life when rates may be more favourable, due to reduced mortality and increased morbidity. The data also highlights that the highest income withdrawals are being made by those in their mid-late 60s which is the point people are most likely to have fully retired and to be in reasonably good health. These consumers are more likely to aspire to an active retirement involving travelling and/or seeing family but this level of spending is unlikely to be sustainable in the long term, therefore the flexibility to reduce future payments at any time could be highly beneficial.”

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