I’m not against some loosening of the rules on pension access - and there is some sense in giving people access to their money earlier than they anticipated - but it seems to have unleashed some very unwelcome genies.
This week Financial Planning Today reported on the latest figures from the FCA’s Retirement Income Data report which showed some worrying signs. Signs that the PFS has already called alarming (click on stories below for more).
Nearly 50% of pension savers access pots with no advice
PFS brands FCA retirement figures ‘alarming’
You can read the full report on Financial Planning Today but here are a few of the headlines:
• 48% of people accessing their pension pots do so without any professional advice or guidance
• 40% of income withdrawals were at an annual rate of 8% - pretty much an unsustainable amount
• 645,000 pension pots were accessed in 2018/19 and 350,000 were fully withdrawn at the first time of access (90% held less than £30,000 in value)
So the picture is one where hundreds of thousands of pension savers, who have probably saved most of their lives, have taking out all of their money from their pensions. We know from other research that many are squirrelling the money away in bank and savings accounts which mostly fail to keep up with the inflation. Presumably they have done this because they did not trust the pension sector to look after their money but that’s the subject for another column.
I would make a small wager that prior to the Pension Freedoms many of these people would have probably bought an annuity or accepted a modest company pension, using it to top up their state pension.
In other words they’ve now swapped jam tomorrow for jam today - the precise opposite of what pensions were set up to do.
We’ve also seen since 2015 seen an explosive rise in pension scamming. As I write this there is a whole industry of crooks trying to use the Pension Freedoms to cheat pension savers out of their money. Thousands have lost life savings and the industry is only now trying to stem the tidal wave of scamming. The Pension Freedoms have made scamming easier.
I don’t believe in the nanny state and I do believe in personal freedom but in hindsight giving so many access to what they previously considered as ‘untouchable’ funds was a mistake. We need more research to really find out what people have actually done with their pension cash but the current findings do not point to a success.
If we find out large numbers of pensioners are entering their seventies and eighties having run out of pension cash the government will only have itself to blame. Sadly the taxpayers will pick up the bill.
With such huge implications the government should look at ways to ensure pension savers fully understand the implications of ‘jam today’ and understand the consequences.
It may be time to put the brakes on the Pension Freedoms.
Kevin O’Donnell is editor of Financial Planning Today and a financial journalist with 30 years experience. This topical comment on the Financial Planning news appears most weeks.