Post-freedoms
When assessing last year’s drawdown survey results, it was clear that there had been no major impact during the first few months of the pension freedoms. Now, more than one year on, it tells a slightly different story.
Table 3 looks into the percentage of income drawn by clients. This year, the Table shows figures for both advised and non-advised clients to see if there has been any difference between the two.
In the past, clients tend to take the most or the least available. Similarly to last year, there is a higher percentage drawing nil income. The difference between advised and non-advised is surprisingly minimal. In fact, the average drawing nil income for both is 52 per cent. The biggest difference only lies with clients taking between 0 and 2.5 per cent income – 10 per cent for non-advised and 19 per cent for advised.
This year, we also asked providers for the percentage of clients who fully deplete funds. For advised clients, this sits at just 2 per cent, whereas non-advised is 8 per cent. This figure should be taken with a pinch of salt as it could be the pots that are fully depleted are those with very small amounts of money.
Chris Smeaton, director of commercial and strategy at James Hay, says he has seen an increase in investors entering drawdown and an increase in withdrawals due to flexi-access. “Although we have seen some large individual withdrawals under the pension freedoms, the vast majority of those in drawdown are taking a cautious approach and happy to preserve their pension fund.”
Mr Smeaton adds that nominating individuals to benefit from the pension fund on the member’s death, as it is conventional thinking to see pensions only as providing a retirement income, has generated a lot of income.
However, Elaine Turtle, director at DP Pensions, says she has not seen a significant increase in new business, but did not expect to. “What we have seen is clients who are prepared to pay more contributions into schemes, as there is more flexibility on how they can now take their funds out and the fact that they can pass funds down to other family members,” she adds.
Risks attached
“There is no doubt that the pension freedoms have had a significant impact on the drawdown market,” Ray Chinn, head of pensions and investments at LV, says. “In many cases, customers will benefit from the greater flexibility that is now available, but the overall risks associated with drawdown have not diminished.
“The importance of not drawing too much income too quickly, the need for an investment strategy that meets long-term needs, and the dangers of sequence of returns risk are all key areas, which, in our view, make advice a pre-requisite for customers who are looking at this type of solution,” Mr Chinn adds.
