One in three take pension cash early without advice
More and more people are drawing their pension early without taking advice, prompting a warning from the financial watchdog.
A report from the Financial Conduct Authority (FCA) found this early access to pensions is now the"new normal". Almost three-quarters of pension pots accessed were by those under-65, although most were small funds held by those with alternative retirement incomes.
So-called"pension freedoms" were introduced in 2015 and allow those with a defined contribution pension to access it early at the age of 55.
The FCA discovered that more than half of the money withdrawn was not being spent, but instead moved into other savings and investment funds. There is concern that declining trust in pensions is leading people to take an unnecessary tax hit to withdraw their pension early.
An increasing number of people are also accessing cash without seeking advice or shopping around - rising from 5pc of those withdrawing before pension freedoms were announced to 30pc now.
Tom McPhail, head of policy at Hargreaves Lansdown, said that the FCA report looked like the watchdog was"trying to put the pension freedom genie back in the bottle".
"The liberalisation of pensions has proved very popular with investors but this regulatory review highlights some of the shortcomings in the system. The government needs to engage with the challenges set out here and to look at how it can help savers and investors to make the most of their money."
Jon Greer, head of retirement policy at Old Mutual Wealth, said that the figures in the FCA report show many are depositing their pension money in an Isa, cash, buy-to-let properties or a fixed-term deposit, which can have"disastrous long-term consequences".
He also highlighted the higher tax bill many using pension freedoms will face
“Taking a lump sum in a single tax year is likely to result in paying more income tax than withdrawing money gradually. And savers are giving up future tax-free investment growth in a pension in exchange for comparatively low-growth assets like cash, or illiquid property," added Mr Greer.
Christopher Woolard, director of strategy at the FCA, said: “Since the introduction of the pension freedoms, the retirement income market has changed substantially.
“We have identified areas where early intervention may be needed either now or further down the track to put the market on the best footing for the future. Ensuring this market works well will require cooperation across Government, regulators, the industry and consumer bodies.
The FCA is looking into providing extra protections for consumers who draw on their pensions early without advice, as well as measures to make shopping around simpler. The watchdog is also looking into ways to increase public trust in pensions