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Annuity sales went down in 2022-23, despite interest rates edging up during that period. The biggest increase in pension plans accessed for the first time was seen in uncrystallised funds pension lump sum, but encashment remains the most popular choice.
Retirement income market data released by the Financial Conduct Authority on Tuesday shows UFPLS saw a 14.6% increase in pension plans accessed for the first time up from 36,271 in 2021-22 to 41,571 in 2022-23.
Despite higher interest rates having made annuities better value, sales fell by 13.6%, from 68,514 in 2021-22 to 59,163 in 2022-23 (13.6%).
Source: FCA Source: FCA
Advice was taken in relation to a third (32.9%) of plans accessed for the first time, which marks a slight reduction compared with 2021-22, from 33.4%.
Paul Leandro, a partner at consultancy Barnett Waddingham, says the increasing level of cash withdrawals is not a surprise.
“Pension freedoms opened up Pandora’s Box - the temptation to draw cash rather than secure retirement income is great, especially in light of the cost-of-living crisis,” he said.
He sees the data as evidence that a much more robust at-retirement framework is needed. People need to be able to better visualise their income requirements in retirement, he said, and there should be “a tangible way to understand the knock-on effects of taking too much cash too early”.
For Leandro, the current pension landscape looks “dire”.
“Not enough contributions going in, coupled with too much cash being withdrawn too early, makes for a very bleak future ahead. Innovation is critical to better support people’s decision making - the best time was 10 years ago, the second-best time is now.”
