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Is Pension Wise scaring users away from drawdown?

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Data published by the FCA appears to show Pension Wise sessions could be pushing people away from entering drawdown contracts in favour of annuities and cash withdrawals.

This month the regulator released figures collected during Q3 2015 on how savers are accessing their pensions. It includes data on whether savers who go into drawdown or buy an annuity have been to Pension Wise, seen an adviser or neither.

According to the FCA, just 9 per cent of people who go into drawdown say they have been to Pension Wise, while 14 per cent of all those who bought an annuity used the service, as did 25 per cent who cashed their entire pot in.

Tisa policy strategy director Adrian Boulding says: “I’m reading from that Pension Wise is clearly putting people off drawdown.

“The numbers are sufficiently stark to make me think there must be something going on during the discussions on drawdown – they must be saying to people ‘oh this is terribly risky, you can run out of money and the performance could be poor’.

“The problem is it depends what they do instead – maybe they’ll take all their money out and put it into a building society.

“The stats also show 25 per cent of the people who cash in their pension have been to Pension Wise, so maybe they are thinking ‘all this pensions stuff is terribly complicated if I don’t cash it in I’m not dealing with something I know and understand’.”

A Treasury spokesman says: “Pension Wise is unique in offering a free and impartial service for people looking to understand their options. As a part of any appointment delivered, Pension Wise guiders give equal weight to each option available before setting out the choices available, this may include seeking financial advice.”

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. Or perhaps Adrian, individuals who contact Penion Wise are simply more risk averse than others who are blindly opt for drawdown without fully evaluating the risks and who seek no guidance at all. To infer that Pension Wise is scaring people away from Drawdown suggests a worrying lack of understanding about the type of people who seek guidance.

    It would probably be more appropriate to suggest that a significant percentage of people that opt for drawdown rather thn an annuity without seeking guidance are making poor choices and will end up worse off.

    Drawdown requires consistent stable investment returns to deliver income in excess of an annuity for the duration of an average retirees lifetime and market volatility will inevtitably sting a high % of consumers who have underestimated the risks involved.

  2. Reverse the stats and 91% of people who HAVE gone into drawdown have not seen Pension Wise, so can it be inferred that all have made the right choice or taken regulated advice? May I suggest that is the more worrying fact? Also many of those seeing Pension Wise may not be doing anything at all, often the best option; these “statistics” in isolation are really meaningless.

  3. Looked at another way, people contacting Pension Wise are getting some sound advice (sorry, guidance) and it’s helping them to make sensible decisions.

    Erm, well, that’s pretty much Pension Wise doing what is was set up to then.

  4. These figures tell us little.

    I suspect most of these people opts to take advice from an adviser.

    Also, I suspect that often they had small funds.

    Knowing their previous ATR would also be interesting given that use of drawdown requires a given level of fund growth.

  5. Two common yet erroneous assumptions about DrawDown seem to be firstly that it offers some sort of magic means of extracting a quart from a pint pot (which, of course, it can’t) and secondly that all annuities represent poor value for money (which, by comparison with the rates available 10 or 20 years ago, may be true but ignores their prime virtues).

    Perhaps the main reason why people who consult Pension Wise are being deterred from DrawDown is that once they’ve had explained to them the dangers of pound cost ravaging, from which their fund may never recover, they think again. It’s (fairly) well known that as many as a third of people in the US drawing down from their funds simply burn them out within their lifetime. I don’t recall the proportion for Australia, though I imagine it’s probably similar. Is that a risk you’re prepared to take, Mr Client? How many are likely to answer yes to that question?

  6. Paolo Buco nel Terreno 28th January 2016 at 1:54 pm

    No they aren’t.

  7. Julian,David
    Quite so. This is just another silly headline that should have read “Pensionwise found to be giving wise pension guidance”

    Just as it says on the tin.

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