Savers press ‘pause’ as pension engagement levels fall ‘dramatically’ amid lockdown – ABI

The number of people choosing to take their pension as drawdown fell by almost half (42.2 per cent) compared to 2019, analysis by the Association of British Insurers (ABI) has found.

The group stated that the number of people enquiring about and accessing their pension has fallen ‘dramatically’ over the lockdown period, with the number of enquiries from members about their pension also falling by almost a third (31.9 per cent).

Furthermore, those choosing to take only a tax-free lump sum has more than halved (53.1 per cent), and the number of people withdrawing the entirety of their pension in one lump sum fell by 30.2 per cent.

The largest fall however, was amongst those buying a guaranteed income for life or annuity, with a 56.3 per cent drop compared to 2019 data.

According to the analysis, this “pause” on savings was also prevalent throughout March, when stock market volatility increased, with the number of people taking only a tax-free lump sum falling by 29 per cent.

Those choosing to withdraw their entire pension in one lump sum also fell by a fifth in March, although the largest year-on-year fall was again in annuities, which fell by 36 per cent.

ABI also highlighted that the overall fall from March 2020 to April 2020 was bigger than the corresponding change recorded in 2019.

The association has now warned that as the country eases out of lockdown, it would expect withdrawal rates to being to increase due to “pent-up demand” and as financial need increases amid the end of the government Furlough Scheme.

As such, it has emphasised the importance of accessing impartial financial guidance from Pension Wise or from a regulated financial adviser.

ABI head of long-term savings assistant direct, Rob Yuille, added: “As Covid-19 struck there was a fear in the industry and in government that a pensions panic would hit, with mass pension withdrawals out of fear of stock market volatility and labour market uncertainty.

“So far, this concern couldn’t be more wrong. Instead customers have been holding off in large numbers.

“The pandemic is a harsh reminder of the uncertainty of how long your retirement might last, what it will look like and what it will cost.

He added: “More than ever it has shown that when it comes to making decisions on your pension, you should get expert help.”

Industry experts have echoed this call for members to seek financial advice, with Royal London pension specialist, Helen Morrissey, noting that whilst the findings are “not surprising” given the current landscape, people will need to seek help when navigating this “increasingly complex environment”.

Smart Pension director of policy, Darren Philp, reiterated this, clarifying that these may be “reassuring statistics” as people haven’t yet rushed to their pension amid the pandemic, but warning that “could all change” as the economic uncertainty increases and the furlough scheme ends.

Indeed, recent research by PensionBee revealed that 40 per cent of working respondents would want to access their money if they become unemployed, while more than a fifth (22 per cent) are more likely to make a withdrawal due to the pandemic.

PensionBee CEO, Romi Savova, added: “Our data suggests that pension providers are not doing enough to support consumers to make decisions that are right for them.

"Consumers do not adequately understand how the pandemic affects their pension, and
the majority (69 per cent) have not been contacted by their provider about this, and are worried.

“Pension providers have a responsibility to support their customers, particularly during this time of economic uncertainty, and should offer easily accessible information on sustainable withdrawal rates to allow consumers to adequately plan for a happy retirement.”

Adding to this, Quilter head of retirement policy, Jon Greer, stated that whether people will dip into their pension pots in the autumn “remains to be seen”, especially as the government looks to wind down support schemes and companies are forced to make “tough choices” about staff.

He explained that older staff that find themselves out of work may choose to retire earlier than planned, while others will use their pension to replace their income while they look for a new role.

Indeed, recent Office for National Statistics data found that 2020 had seen the largest four-month rise in early retirement since 2010, while research by the Co-Op revealed that many of those who have been made redundant have chosen to retire earlier than planned.

Greer warned that whilst it can make sense to utilise pension assets this way, it is “really important” to remember that this can have a big impact on a pension pot’s longevity.

He gave the example of those taking a flexible income now and then returning to work at a later date finding that they are limited in the amount of pension contributions they can pay due to the money purchase annual allowance (MPAA).

Throughout the pandemic, industry experts have warned over the adverse impact that the MPAA could have on pension savers, or on members looking to recoup savings following the pandemic, with a recent survey by AJ Bell revealing that as many as 83 per cent of financial advisers would like changes to the MPAA.

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