Over-55s are enthusiastically taking advantage of their new pension freedoms, research shows.
Pensioners keen to withdraw entire pot
More than two thirds of people accessing their pension pots took the entire thing as cash in the third quarter of 2015, according to a report by the Financial Conduct Authority (FCA).
The report reveals almost 121,000 pension pots were fully cashed out during the period, representing 68% of cases where someone accessed their pot.
However, 88% of those who fully encashed their pension savings had pots worth less than £30,000.
Find out more: can I take my pension pot in one go? – our guide explains the tax implications
Annuity sales remain low
The total number of people accessing their pensions fell by around 13% compared to the previous quarter, suggesting the introduction of the freedoms in April sparked a rush of pension withdrawals.
The report states that 23,385 people opted to buy an annuity in Q3 2015 – more than five times less than the amount of people who took the whole pot as a lump sum.
Almost two-thirds of people who bought an annuity during this period stuck with their pension provider, despite previous FCA research showing that four out of five people who do so could have got a better deal elsewhere.
Find out more: annuities explained – how to turn your pension fund into an income
According to the FCA research, about a third of people accessed their pension with an uncrystallised fund pension lump sum (UFPLS), whereby only three-quarters of the withdrawn amount is subject to tax.
About 30 per cent used income drawdown of some form, where the entire sum is taxed after the initial 25% tax-free lump sum is taken.
Only 3,381 people purchased what the FCA refers to as ‘third way products’, including variable, fixed-term, with-profits and unit-linked annuities.
Find out more: income options for your pension under the 2015 rules – a summary of your options