The FCA today published the interim findings of its study into the retirement income market which found 30% of drawdown is currently bought without advice, compared to just 5% prior to April 2015 when pension freedoms were introduced.
The watchdog’s study aims to shed light on consumer behaviour since the introduction of the legislation which effectively removed the obligation for pension savers to buy an annuity and enabled them to take their entire pension pot as cash.
Since then, drawing an income from a pension pot that remains invested has become increasingly popular option.
In fact, at present twice as many pots are moving into drawdown than annuities, whereas before the freedoms were introduced more than 90% were used to buy annuities, according to the FCA.
The report also found more than half (53%) of pots accessed have been fully withdrawn as cash, but these pots are mostly small with 90% below £30,000. Elsewhere, more than half (52%) of fully withdrawn pots were not spent but were moved into other savings or investments.
However, the FCA warned that drawdown is “complex” and is querying whether consumers need more support and protection before choosing that path.
It noted that consumers who access their pots early without taking advice typically follow the “path of least resistance”, accepting drawdown from their current pension provider without shopping around.
The FCA pointed to data from the Association of British Insurers that revealed 94% of non-advised drawdown sales were made to existing customers.
Christopher Woolard, executive director of strategy and competition at the FCA, said: “We have identified areas where early intervention may be needed either now or further down the track to put the market on the best footing for the future.
“We will work closely with stakeholders to make sure we are clear on the actions we are best placed to lead.”
Frances O’Grady, general secretary at the TUC, described the report as a “damning verdict on so-called ‘pension freedom’."
“Savers are increasingly dipping into their pots early. And others are following the path of least resistance and risk buying rip-off products,” she added.
“The government needs to learn from the successful roll-out of auto-enrolment. Ministers must ensure all savers are offered a decent option by default.”
Elsewhere, David Newman, head of pensions at Close Brothers Asset Management, said without taking advice many people run the risk of exhausting their savings too early by not having the right investment or drawdown strategy.
He said: “The freedom offered by the pension changes has clearly been embraced by consumers, but it is important that the FCA monitors the consequences and intervenes accordingly.
“The industry as a whole needs to work closely with the FCA to develop tools and services to help consumers understand their options after the pension freedoms as well as improving trust in pensions.”