ABI figures point to 'responsible' use of UK pensions freedoms, says expert

Simon Laight of Pinsent Masons, the law firm behind Out-Law.com, said that figures from the Association of British Insurers (ABI) showed that £1.3bn was put into buying nearly 22,000 regular income products over the same period. Of this money, around 50% was invested in annuities and around 50% in more flexible income drawdown products, according to the figures.

"What these figures show is that, contrary to recent government and certain press comment, the industry has responded well to the 'Freedom and Choice' agenda," Laight said. "Time was short and yet, in general, industry has embraced what are entirely voluntary changes."

"The figures also appear to point to a mature response by savers, with the larger pots being put into regular income products rather than being cashed out. Early days, but perhaps the government was right to trust that people would behave responsibly with their money," he said.

In total, nearly a quarter of a million payments were made from pension pots in April and May 2015 according to the figures, which cover life insurance and pension providers that are members of the ABI. The data indicated that savers with smaller pension pots were tending to cash them out entirely, while those with larger pots tended to purchase a regular income product, according Dr Yvonne Braun, the ABI's director for long-term savings policy.

The data was released to coincide with 100 days under the new regime, which came into force on 6 April 2015. As of this date, members of defined contribution (DC) pension schemes have had more freedom to access their savings once they turn 55, without facing heavy tax penalties or necessarily having to buy an annuity. Savers are guaranteed the right to free and impartial guidance at the point of retirement through the government-backed Pension Wise service, although this does not provide them with regulated financial advice.

The ABI's figures showed that the number of annuities as a proportion of regular income products sold has fallen dramatically since the reforms were introduced, from over 90% in 2012 to less than 50% today. The data also showed that more customers were shopping around for the best deal before purchasing a retirement income product, with 45% of those purchasing an annuity doing so from a different provider and 52% switching when buying an income drawdown product.

In its recent market study of the retirement income market, financial services regulator the Financial Conduct Authority (FCA) said that more had to be done to encourage consumers to shop around for the best deal before purchasing an annuity. It is considering the case for a central 'pensions dashboard' as a longer-term solution, but has recommended that pension providers supply customers with more information about how their quotes for retirement income products compare to others on the open market as well as changes to pre-retirement 'wake-up packs'.

The UK Treasury has promised to act to remove any "unjustified" barriers preventing people from accessing their pensions more flexibly. It intends to publish a consultation shortly on options including potentially capping the fees that schemes can charge members aged over 55 for winding up their policies early or transferring to a scheme offering the full range of flexible pension options.

The ABI's Dr Yvonne Braun said that the figures showed that "tens of thousands of people are successfully accessing the pension freedoms as intended and on the whole the industry has risen to the challenge of giving customers what they want".

"We are just three months into the biggest overhaul of pensions for a generation which was introduced in only one year, so some issues remain that need to be worked through, in particular around financial advice," she said. "This is why we launched our 'action plan' to call for a joint taskforce with industry, government and regulators to work through the challenges and ensure all customers can access their pension in the way they want."