So are the new Pension Freedoms being used? The answer to this appears to be a very clear ‘yes’. Figures from the Financial Conduct Authority (FCA) this week provides firm evidence of such usage.
The data relates to the three months following the full introduction of Pension Freedoms on the 6 April this year. The FCA compared that three-month period with the same period in 2013.
Some may question why the FCA is using data from two years ago rather than last year – yet the rationale is sound. Pension Freedoms were first announced by The Chancellor in March 2014, so it follows that the announcement may well have skewed last year’s figures somewhat. The FCA has therefore returned to the period before this announcement had been made (when there was no indication that such a change in legislation was on the cards).
So what does the data tell us? The headline figure is that 204,581 pension policies have been accessed in the three month period 06/04/15 – 30/06/15. This compares with only 95,372 in the equivalent period of 2013. Clearly this is a massive increase, but there were many older savers who deferred a decision on pensions last year awaiting the new legislation.
So this may reflect pent-up demand, and may not be indicative of the future. Yet a second figure does suggest a seismic change in direction for older savers and pensioners. The number of annuities sold in the three-month period of 2015 is estimated at 12,418 – compared with 89,896 in the same months of 2013. This second set of data is more telling, and suggests that the nature of retirement income may be changing.
The bigger concern will be whether these pension savings are being used for short-term spending at the expense of long-term financial security. This is something we commented on early this year. We will of course watch for further data in this key area, and will update you on this as appropriate.