Employees keen to cash in or drawdown pension pots

Savers looking to access their pension pots following the introduction of the new pension freedoms on 6 April are more likely to take savings as cash or go into drawdown, according to early analysis by several pension providers.

Fidelity Retirement Services found that, from around 200 calls, a quarter of people in defined contribution (DC) pension schemes wanted to take a tax-free lump sum only.

A further 75% wanted to cash out of their pension completely or take a specific amount of money above the 25% tax-free lump sum..

Meanwhile Hargreaves Lansdown, which received 25% more calls on 6 April and up until 1pm on 7 April than in the equivalent period last year, found that of the 80% retirement benefit calls it received, some 70% were about flexible access drawdown.

In addition, 17% were about annuities and 13% on accessing as much of their fund as they wish, also known as uncrystallised funds pension lump sum.

Tom McPhail, head of pensions research at Hargreaves Lansdown, said: “[Savers] are clearly keen to enjoy the benefits of the new pension freedoms.

“We had projected that across the pension system as a whole, up to 400,000 investors would take advantage of the new freedoms in the opening months of this tax year and based on [our experience so far], this still looks like a reasonable expectation.”

Furthermore, provider Standard Life has also seen longer call wait times than usual, with calls about the pension freedoms lasting around 30 minutes on average.

The main requests from its customers so far relate to taking cash from their pension; either full encashment or simply the tax-free element. Customers who decide to fully encash are generally those with smaller pots.

However, Fidelity has received calls from a handful of people who thought 6 April was a deadline to access their pension and not the beginning of the new rules.

It also received a call from a 23-year-old who mistakenly thought they could get hold of their pension pot now.

Richard Parkin, head of retirement at Fidelity Worldwide Investment, said: “Most of the [people] that have called Fidelity’s Retirement Service are members of the [workplace] pension schemes we manage wanting to take cash. Given that this is the new feature this is not unsurprising.

“Generally, behaviour seems reasonable with those wanting to cash out completely having smaller-value pots and those with larger savings just looking to take tax-free cash. We have got a number of sizeable accounts looking to cash out completely but they seem to be the exception at this stage.

“We have seen that misunderstandings exist around aspects such as when you can access your funds. Since the new freedoms were announced, we’ve received a steady number of calls from people under the age of 55 who think they can access their funds under the new rules. Obviously as these reforms bed in, we would expect less of this.”