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FCA admits pension freedoms cash-out blunder

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FCA figures on the proportion of people who fully cashed out their pension during the second quarter of the freedoms are wrong, Money Marketing can reveal.

Since the retirement freedoms were launched in April the regulator has published two sets of quarterly data designed to show how consumers are responding to the reforms.

The latest statistics, for the three months to September last year, suggest over two-thirds (68 per cent) of pensions were fully cashed out during the period.

However, Money Marketing can reveal the figure – widely picked up in the national press – is incorrect.

As part of the data collection exercise, the regulator asked providers for data on pensions accessed. This is based on sales information supplied by providers.

However, firms were only asked to provide data on the number of pensions fully cashed out in the ‘withdrawals’ section of the information request – which includes both new sales and existing policies.

The regulator then mistakenly applied this number to the sales figure to generate the inflated 68 per cent figure.

The FCA is removing reference to the 68 per cent figure following questions from Money Marketing.

An FCA spokeswoman says: “In our recent report into retirement data we included some data on the numbers of people cashing out their pension pot. In response to a specific query we have revised the published version of the report.

“The 120,969 figure relating to customers fully cashing out their pension in the quarter is correct.  This includes customers who were accessing their pension for the first time in the quarter as well as existing customers who were already in retirement income products.

“We have removed the figure of 68 per cent of new customers fully cashing out their pension, as the total customer numbers include some existing customers.

“We intend to publish a corrected figure shortly as soon as we have obtained and analysed some extra data from firms. However, on the basis of all the data we hold presently, we do not expect a material shift in this number and it is still clear that a large proportion of consumers are cashing out their pension in full.”

AJ Bell head of technical resources Gareth James says: “The initial figures were surprising to us because they were not in line with the behaviour we have seen from our customers. It’s good to see that the number of people fully cashing out their pension may not be as high as initially thought.”

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Comments

There are 22 comments at the moment, we would love to hear your opinion too.

  1. Jolly good, more misleading data to bamboozle the public. One assumes that the national press will widely run the error correction (?) restoring some faith in the industry and reducing that of the regulator…….

  2. No no and thrice no – The FCA don’t make blunders, it must have been a small IFA somewhere who will need to take the blame.

  3. *facepalm*

    We have to put up with enough silly “everyone is blowing their pension funds, stop this madness now, ban pension freedoms and make everyone buy annuities again” stories without this kind of stunt.

  4. It’s OK. 78% of the public don’t understand percentages anyway apparently.

  5. Not 1 of our clients has fully cashed out their entire pension fund and less than 10% have utilised the flexi access requirements so the figures quoted bear no resemblance to what we are seeing

  6. At least they admit to having blundered – you wouldn’t get my regulators doing that ……

  7. 64% of statistics are made up on the spot anyway !

  8. Given that a material shift in the numbers is not expected, I am not sure I understand the significance of this story.

    • 120k pensions encashed, 175k sold in 3 months. Divide one by the other 68%. However if there were say, 10m existing pensions 1% is the correct encashment rate. 120k “number” won’t change, 68% certainly will. Hope that makes sense.

  9. @ Siz. It all depends on your definition of Material

  10. OK so what is the percentage? Of those accessing their pensions in the given quarter 120,969 trashed them completely. So what was the former figure?

    Then we need to know the average size of the 120,969 pots. Then perhaps how much was taxable of this amount. Then we can make sensible comments. I guess by any measure this is a pretty awful result. This isn’t what pensions were about.

    • “Trashed them completely”? A million people emptied their bank accounts completely last year. Does this mean we are faced with an influx of a million beggars onto the streets? No, of course not, because nearly all of that money was merely moved into a different account.

      We need to know nothing, it is none of our business. Don’t forget that freedom cuts both ways. The freedom of a person to spend their pension as they wish inextricably means that we are free from having to worry about it.

      • No Sascha I disagree. As taxpayers it IS our business. They got tax relief on the contributions. Who says they didn’t spend the money – or were they that incredibly stupid that they removed their money from a tax protected environment to a taxable on? I guess this is all a cunning plot by ‘Orrible Osborne to either cut back or disallow tax relief on contributions in future.

    • Hi Harry
      I bet the vast majority of the pots were small, so……. wouldn’t an increase/change in the triviality amounts/rules sufficed ?

      But hey what do I know ?

  11. Despite the changes to British pension rules that allow affluent retirees to draw down their pots and splash out, none of the beneficiaries so far appear to have followed the suggestion of former minister Steve Webb that they might purchase a Lamborghini. The spokesperson confirmed: “No, we haven’t seen an influx of pensioners.”

    • Sure and the financial services industry rubs their hands. Continuing fund charges, platform charges and adviser charges. How many of those taking (say) a 6% withdrawal realise that it will take nearer 8% to ensure parity – and with the latest market reversals they must be losing a packet. If they are truly affluent they have other assets with which to splash that wont cost them as badly.

  12. I wish I had a million pound pot to cash out because if I did I wouldn’t be wasting my time writing this. I’m assuming the other posters writing on here also don’t have million pound pots to cash out? Either that or they’re all waiting for China to get its act together then they’ll cash out? I can see it now; “I thought the critical yield was that when in fact it was something different such as this.” No problem says Mr FOS.

  13. It makes you wonder who produced the figure, they obviously know absolutely nothing about the data they are looking at, if you came up with the result of a sum that didn’t look right, wouldn’t you check?? Even a chippy will measure twice and cut once!

  14. Which explains, perhaps, why the FCA makes no attempt to analyse anyone’s GABRIEL returns.

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