Almost three weeks on from pension freedoms finally “going live” we have just about enough information to see that the stampede to strip pots of cash originally feared has not transpired. Certainly the Government’s Pension Wise service has not been put under the strain first expected. A total of 1,800 appointments were booked by the time the freedoms came into force on 6 April but the service has the capacity for up to 10,000 appointments a week this month and over 400,000 a year. Providers, meanwhile, have reported higher than usual call volumes but mostly from customers seeking information about their policies and options.
Royal London and Scottish Widows have both reported answering around 3,000 “at retirment” calls a day, while Aegon reported an increase of that same number received the first day of freedoms, compared with the first day of the tax year in 2014. Around 70 per cent of Aegon’s calls were answered within 20 seconds and the average speed of answer across the entire day was 46 seconds. Elsewhere, Standard Life received over 5,000 calls in the first week of freedoms, while LV= reported taking roughly double its usual number of calls.
Fidelity Worldwide Investment head of retirement Richard Parkin says the record number of calls on day one did tail off but they remain at higher than average levels. “At present, our current waiting times average out at just under a minute. I know a manic rush was predicted by some but, looking at what we are getting, consumers are actually more considered,” he says.
Liberty Sipp managing director John Fox agrees. “We have had an awful lot of calls from people asking for information but only 20 out of 4,500 customers have wanted to cash in,” he says.
LV= chief operating officer Steve Knight has also seen calls mainly focus on general information. “Some have been calling for details of their policies, such as valuations, and some have started to move into taking action, but most are taking some, rather than all, of their money,” he says.
Take the money and run?
Fox believes people who have Sipps are less likely to want to encash their pensions but he has seen some people transferring to Sipp providers from life companies in order to take advantage of faster turnaround times in accessing their cash. He says some of the requests for withdrawals have been interesting.
“One person wanted to put all their money in buy-to-let properties and a woman who cares for her parents wanted the cash so she can utilise the money now rather than later. We have only had one person scream and shout that they want the money now,” he says.
Old Mutual Wealth says the vast majority of customers contacting it are looking at partial withdrawals or increasing their income drawdown rate beyond the limits imposed under the capped drawdown system. Less than 10 per cent have wanted to encash their entire pot and these have tended to be smaller pots of below £30,000.
Meanwhile, Parkin says that while many of Fidelity’s customers are interested in taking cash, the number of full instructions to do so was just over 1 per cent of those eligible up until 9 April.
“Generally this has come from people with smaller pots but we are seeing some with large pots wanting to cash out in full. This may seem ill-advised but for wealthier individuals the tax levied on full withdrawal is only marginally higher than they would pay in drawdown on higher rate tax,” he says.
Unsurprisingly, providers have also had to contend with some rather odd queries. Aegon, for example, has taken a number of calls from customers expecting to sell their annuities now, despite it still being under consultation, chief operating officer Tommy Young says.
“We’ve also received a number of enquiries from customers thinking they will be able to access their retirement savings immediately, just like they do their bank account, and expect to be able to withdraw money as and when they like without having to complete any forms,” he says.
Liberty Sipp’s Fox says: “One woman, who turns 55 in August, said she was worried Labour would get into government and change the rules. We’ve also had some people under 55 thinking they can cash in their pension.”
Second line of defence
Pension information service Avacade Future Solutions chief executive Lee Lummis says the overwhelming sentiment witnessed is caution. “The lack of flexible decision making has, in large, been caused by the public not feeling equipped for the changes and suffering from a misunderstanding in terms of how they will personally be affected,” he says. He thinks greater information will help people make decisions.
Indeed, many providers have seen customers wanting to withdraw cash from their pensions reconsider their actions once they understand the full implications. For example, Old Mutual Wealth found some decided to postpone such a decision after receiving warnings under the second line of defence required by the FCA. Aegon says its experience has been similar and, according to Knight, around 12 per cent of LV= customers at that stage admitted they had not thought about tax impliacations and were encouraged to take advice.
The second line of defence at Standard Life also appears to have been effective so far, according to head of pensions strategy Jamie Jenkins. “We had a number of people with smaller pots under £10,000 looking to cash in. But when they understood the tax implications many changed their decisions based on the warnings they received,” he says.
It is worth remembering, however, that individuals’ circumstances vary greatly and so withdrawing cash from a pension or taking it entirely could make sense for some people. Jenkins says: “It is not for us to judge, as long as we make sure they are making that decision on an informed basis.”