Almost a third of savers using income-drawdown plans to access their pension take no financial advice before doing so, according to the Financial Conduct Authority (FCA). Before the pensions-freedom reforms came into effect in April 2015, the percentage was only 5% (partly because access to drawdown was effectively restricted to a narrower, wealthier range of people). Since the reforms, which have made it much easier for savers aged 55 and above to use drawdown schemes, sales of the product have soared. Today, twice as many people opt for drawdown as buy an annuity (which was a big part of the point of the pensions-freedom rules).
While drawdown has its advantages – particularly in helping people avoid locking into low annuity rates – it also requires finely balanced judgements that can be difficult to make without professional guidance, warned the regulator. That said, the evidence is that most people are managing their money well, with only a small minority taking money out of their savings regularly, said the Association of British Insurers.
Even where savers make large withdrawals, the FCA conceded, the majority are reinvesting the money into other savings products, including tax-efficient individual savings accounts, and there is no evidence of significant numbers blowing their entire pension pots on fast cars. However, the FCA may still ask the government to introduce stricter rules on drawdown advice. It is particularly keen to see savers shop around, as most just opt for a drawdown plan from their existing provider.