Fewer retirees are taking regulated advice before switching their pension cash into income drawdown and guaranteed income for life solutions, says Just Group.
The company’s analysis of the latest product sales data from the Financial Conduct Authority (FCA) found that of the 267,204 decumulation products sold in 2022 just over 41% were sold without advice, compared to 34% in 2018.
Its analysis also revealed that in the same period, the annual number of advised sales dropped by 7% to 157,011, while the number of non-advised sales soared by 24% to 110,193.
The FCA’s product sales data includes data on protection products; retail investments, including decumulation products, occupational pensions and personal pensions; and mortgages.
Complex and varied
Stephen Lowe, group communications director at Just Group, said: “Advice is important in a market where there are multiple providers with often quite different rates on offer, as is the case in the annuity market.
“And those who want to use drawdown find it almost impossible to shop around without professional help to compare providers to get the best deal because the product’s charging structures, investment choices and fees are so complex and varied.
“Unfortunately, the figures show increasing numbers of individuals going it alone which significantly raises the risks of poorer outcomes in retirement.
“We are now eight years on from the ‘freedom and choice’ reforms and use of the professional help available – either advice or guidance – is slowly but surely slipping away, even though we know the average value of pensions used to buy annuities and drawdown has been increasing.
“The regulator and policymakers have a responsibility to make sure people are making informed and considered choices that they don’t later regret. These figures put a big question mark over their success so far.”
Keith Churchouse, director and financial planner at Chapters Financial, added: “Considering that retirement and drawing pension benefits is one of the major ‘life junctions’ in anyone’s life, the headline figures are disappointing. It is good to have the data.
“The importance of making the right decisions when drawing pension benefits has never been more vital as we see living costs rising and other opportunities, such as annuity purchase, having a real (positive) impact on outcomes.
“We also have to recognise the success of pensions auto-enrolment in the numbers now saving for retirement, however, generating small pension pots that are simply accessed or drawn via drawdown. This will have an effect on the overall advised/non-advised outcomes and the cost of advice might be prohibitive in this context.
“The government’s Pension Wise initiative, and stronger ‘nudge’ programme seem to be having an effect and many may feel that they can make their own decisions from the information provided, without seeking bespoke advice. Time will tell if this proves to be a wise route, and we may see detrimental outcomes in the future. Perhaps the impact will be the need to return to work to make ends meet.
“Pension Wise is effectively an education programme on what can be achieved, and many do not, and never have, understood pensions. Pensions simplification from April 2006 proved almost to be the exact opposite. I would like to see greater signposting to advised sales, perhaps for funds in excess of £75,000 ($87,000, €95,000) as an example, to ensure that benefit outcomes really are meeting a client’s needs, both at the outset and into the future.”