The Financial Conduct Authority (FCA) has published the first comprehensive analysis of the pension freedoms brought in by the UK Government on 6 April 2015 that give those aged over 55 access to their money for the first time. Previously, people could only take a maximum of 25% of their pension pots as a lump sum and the remainder had to be converted into an annuity.
The analysis shows that around 200,000 people took advantage of the pension freedoms in the first three months. At the same time, annuity sales have fallen to 12,000 compared with 90,000 in the same period in 2013.
The government has announced a review of exit fees in July next year following rising concerns of exit fees for those who have access to their money. However, the research finds that 84% of consumers eligible to access their pension savings are not charged on exit, despite the administration costs faced by firms in facilitating a cash payment or transfer.
The FCA’s study follows analysis conducted by Frontier in an audit of charges and benefits in pension schemes. The audit followed from the Office of Fair Trading’s September 2013 study of the Defined Contribution workplace pensions market, and was overseen by an Independent Project Board (IPB) with representatives from Government, regulators, industry and consumer organisations. The audit found that pension schemes where exit charges apply made up £4.8bn or 7% of assets under management in unit-linked schemes within scope of the audit. Around £1.7bn was held by those aged over 55, who would be eligible for the new freedoms, and £0.8bn of this was held in schemes with potential exit charges of more than 10%.
Frontier (Europe) regularly advises government bodies and regulators on financial and regulatory issues.
For more information, please contact Goran Serdarevic on [email protected], or call +44 (0)20 7031 7000.