A recent report from the Financial Conduct Authority has highlighted retirement income market trends during Quarters 2 and 3.
Looking at the six-month period between April and September 2016, the data focuses mainly on how people access their pension pots as well as consumer behaviour in relation to use of advisers for different products.
Pension pot access
In comparison with Q1 of 2016, Q2 saw the number of pension pots being accessed rise by 26%; to 157,039. This was, however, then followed by a fall of 8% to 145,068. This trend of rising and falling over the quarters applied across the board in relation to annuities purchased, full cash withdrawals and those partially withdrawn.
Purchase annuities rose in Q2 by 17% to 21,833 but subsequently fell to 20,538 in Q3. This a decline of 6%. Q2 also observed a 43% rise in the number of new customer cash withdrawals to 88,849 before dropping in Q3 by 10% to 79,916. Drawdown policies entered into also followed a similar trend, rising in Q2 by 6% to 3,974 followed by a subsequent fall in Q3 by 11% to 3,547.
Over the course of Q2 and Q3, the number of pension pots accessed by customers for the first time reached 302,107. This was either for the purpose of income or to fully withdraw the money as cash.
Consumer choice and behaviour
For the first time each quarter, there has been a gradual fall in the total number of pension pots being accessed since the introduction of pension freedoms in April 2015. This carried on up until Q2 of 2016 which grew by 26%, up to 157,039. However, Q3 witnessed a fall of 8% with the figure dropping to 145,068.
The period after the reforms was when the highest level of activity occurred, although the current number of pots being accessed appears to be fluctuating. Despite figures falling in Q3 to 79,9916, full cash withdrawals are the most popular product for consumers accessing their pension pots, standing at 55% of the total.
In comparison to Q2, Q3 saw a drop in the percentage of consumers taking out products from their current provider. This was a fall from 59% to 56% for drawdowns and for purchased annuities, the percentage dropped from 61% to 58%. Over the course of quarters 2 and 3, 53% of pensions with GARs were not taken up, a fall from Q1’s percentage of 61%.
In regards to consumer use of regulated advisers, the report revealed that this was dependent upon the size of the pension pot and the type of product.
In comparison to Q2, the percentage of customers using regulated advisers for annuity fell by 1% in Q3 to 33%. From Q4 of 2016 to Q3 of 2015, customers going into drawdown continued to use advisers the most, with Q3’s percentage reaching 65%. As drawdowns provide the second largest volume of new pension access, fluctuations in these levels have an effect on over the total proportion of advice given across the sector. Full withdrawal is the only product type which has seen a rise in adviser use, from 29% in Q1 of 2016 to 47% in Q3.
