The total number of defined benefit (DB) transfers dropped 28% to 40,600 in 2019/20 amid a crackdown by the FCA, new data reveals.
· Almost 200,000 people chose to keep their pension pot invested via drawdown last year, broadly in line with the previous year’s figures
o Some 42% of withdrawals were at a rate of 8% or more – although this figure doesn’t take into account other pensions, wealth or income sources
o The number of pension plans emptied at the first time of access rose 5% to 375,500 – but 9 out of 10 of these were pots worth less than £30,000
· Annuity sales dipped 6% to 69,500 during the year as low gilt yields continued to squeeze rates
Tom Selby, senior analyst at AJ Bell, comments: “It is over five years since then-Chancellor George Osborne ripped up the UK’s pensions market and handed savers total freedom and choice over how they spend their hard-earned retirement pot from age 55.
“The reforms have created a profound shift in the way people generate an income in retirement, with the vast majority choosing to stay invested via drawdown rather than locking into an annuity.
“Given millions of people were being sold inappropriate annuities for life prior to the changes, these changes have helped put an end to one of the great modern retirement rip-offs.
“The pension freedoms announcement also spurred an initial rush to exit DB pensions, with hundreds of thousands of savers opting to swap tens of billions worth of guaranteed income promises for a cash pot they can spend and invest as they see fit.
“This transfer activity inevitably slowed in 2019/20, in part as a result of an FCA crackdown on the market – including a proposed ban on contingent charging – and in part because many advisers have been forced to stop offering DB transfer advice due to the insurance costs involved.
“While clearly the regulator was right to stamp out poor behaviour in the market, the danger is that people for whom a DB transfer would be the right move will now be unable to access the advice they need.”