Details from the Financial Conduct Authority published yesterday showed that 120,969 pensions — or 68 per cent of those accessed between July and September last year — were cashed out entirely. The vast majority of these, 88 per cent, were pension pots with less than £30,000 in savings, reports The Times.
In contrast, just 58,021 people used the money to buy themselves an income, the City watchdog said.
Of those taking an income from their funds, 84 per cent were taking a yield of less than 4 per cent — considered to be a prudent level of extraction to prevent running out of money before they die.
However, more than 24,000 people had opted to take out an income worth more than 10 per cent of their savings, a level that is considered unsustainable in the long run.
John Perks, managing director of retirement solutions at LV=, the insurance and pensions company, described the figures as “extremely worrying”.
He said: “This means most retirees are missing out on getting the most from their retirement savings, and we believe we are on the cusp of a pensions mis-buying scandal.”
Tom McPhail, head of retirement policy at Hargreaves Lansdown, the FTSE 100-listed financial adviser and fund manager, noted that “many aspects of the freedoms are working very well but there are aspects which give cause for concern.”
He added that income withdrawal rates were “mainly at a prudent level”, and savers appeared not to have been put off from buying annuities.
The FCA figures showed that 13 per cent of people taking money out of their funds bought an annuity between July and September.
Many financial advisers had been concerned that savers would be put off buying an annuity — an income for life — altogether as a result of the pension changes introduced in April 2015. However, 64 per cent of annuity-buyers were sticking with their existing provider, rather than shopping around to get the best deal.
The FCA figures also show that relatively few people are using Pension Wise, the government’s free advice service. Just 17 per cent of those withdrawing money from their savings pots used the adviser in the three-month period.
Those taking money from their pension pot after the age of 55 are allowed to take 25 per cent of it tax free, but the rest is subject to income tax.
The Treasury yesterday pointed out that two million people had used the Pension Wise service.
A spokesman said: “Our pension reforms have given people real freedom and choice over how they access their retirement income and the government is ensuring that this new system works in practice and that the market is delivering for consumers.
He added: “We encourage people to shop around and understand their options before making a decision, that’s why we set up the free and impartial Pension Wise service.”
