Consumers do not regret flexible withdrawals despite not utilising advisers

Savers did not regret flexibly accessing their pension savings as part of pension freedoms, despite the majority not using an adviser to help with their financial planning.

New research from Canada Life has found that 90 per cent of those surveyed did not regret their early withdrawal, despite just 32 per cent of respondents using a financial adviser.

Around 60 per cent of cash withdrawals were subsequently invested into bank or savings accounts, while 21 per cent said that they would access flexibly access their pension twice, with just 5 per cent saying that they would withdraw a larger amount the next time around.

Canada Life technical director, Andrew Tully commented: “There is no doubt the pension freedoms have been hugely popular, and in the main, it appears people are informed and making sensible choices.

“But some behaviours appear embedded and some poor decisions are being made. These behaviours are likely to continue without the right interventions.

The study also revealed that 40 per cent of consumers accessed their pension whilst they were still working, with 24 per cent continuing to pay into their pensions once they have flexibly accessed their savings.

Consumers seemed to understand the tax laws surrounding pension freedoms, with 92 per cent saying that they knew that they would be taxed on withdrawal above the tax free threshold and 87 per cent knew what the tax payment value would be.

However, consumers were unlikely to shop around, with 66 per cent of respondents admitting that they did not consider the options offered by their pension provider.

Tully continued: “The lack of shopping around continues unchecked. A significant majority are simply taking the easy route and sticking with what or who they know when looking at an annuity or a drawdown product. This could simply be driven by easy and swift access to tax-free cash, the obvious lack of engagement with a financial adviser or simply overconfidence and lack of awareness of the options available.

“Interestingly, only 1 in 10 people suggested they had any regrets about their pension. However, one in three people also admitted they had withdrawn cash out of necessity. Could we be storing up trouble for the future? I guess only time will tell.”

Separate research from AJ Bell revealed that, based on entering drawdown when the pension freedoms began in 2015 with a pension fund of £100,000 and taking a £5,000 annual income, the best performing fund was Fundsmith Equity.

Its value would now be £165,100, while a portfolio split across the top 10 most purchased funds would now be worth £122,910.

AJ Bell’s study found that the worst performer would have been the City of London Investment Trust, which would now be worth £96,170.

The research found that investment trusts were the most popular with pension freedoms investors, accounting for six of the top 10 most purchased funds.

Commenting on the findings, AJ Bell senior analyst, Tom Selby said: “The disparity between the best and worst performers shows how important investment strategy is. At one end of the scale is the Fundsmith Equity fund, which was the most popular fund and the best performer. £100,000 invested in that fund would now be worth £165,100 even with £5,000 being withdrawn each year as an income.

“Such growth makes even the punchiest withdrawal strategy look sustainable. Based on the £100,000 investment you could have withdrawn £15,000 a year and still have a pot worth £100,000 today.

“At the other end of the scale is the City of London investment trust where £100,000 would only be worth £96,170 today after withdrawing £5,000 a year as income. Even this is still a healthy looking picture though.”

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