Fewer people are seeking advice on their retirement options before taking cash from their pension according to the latest FCA data.
More than half (54 per cent) of the people accessing their DC pensions access for the first time in 2020/21 did so without seeking financial advice or guidance from the government-backed Pension Wise service.
This is a modest increase on previous years. In 2019/20 just 50 per cent of those accessing their pension did so without advice or guidance, and this figure was just 48 per cent in 2018/19.
FCA figures show that, worryingly, an even higher percentage of people cashing in their entire pension are not seeking advice or guidance.
Over the past year 341,404 pensions were fully withdrawn, but almost seven in 10 of these (67 per cent) were cashed in without financial advice or guidance. This figure was up from 62 per cent two years earlier.
Retirement specialist Just Group says its analysis of this FCA data showed a worrying number of people were ‘going it alone’ when it came to exercising their pension freedoms. This lack of professional support increases the risks of people making uninformed decisions, paying more tax than they need to or falling victim to scams it said.
Just Group adds that this latest data shows there has been no progress towards the government’s ambition to make free independent and impartial guidance session ‘the norm’.
Just Group communications director Stephen Lowe says: “The proportion using professional advice is trending lower and pension guidance usage remains stubbornly low at just one in eight (14 per cent) even though it is free. It is a concern because these are key consumer protection measures designed to help people navigate the complexities and risks of ‘freedom and choice’ and to avoid scams.”
Lowe adds that efforts to signpost more people to guidance through revised communications such as better wake-up packs have failed to increase guidance use. “Next June we will see the implementation of the ‘stronger nudge’ changes which is the government’s latest idea, although trials suggest any guidance uplift will be modest,” he says.
“If the government is serious about guidance becoming the norm then we are going to need a bigger intervention and there is wide industry support for a trial of a system where guidance sessions are booked automatically for target groups of pension savers rather than relying on them to opt in.
“Our own research found only one in 25 people aged 44-54 would opt out of a guidance sessions pre-booked for them. This approach would be especially helpful for encouraging those with lower financial capability and less engagement in pensions who are currently most likely not to take up their entitlement to guidance yet are at the greatest risk of making poorer choices.”