The number of customers cashing out their pensions despite having generous guaranteed annuity rates has doubled since the Budget, says Royal London.
As part of the changes introduced in the March 2014 Budget – in which Chancellor George Osborne unveiled radical pension reforms – the trivial commutation limit rose to £30,000.
Since then, the proportion of people with small pots including guaranteed annuity rates – which can be as high as 14 per cent – who cash out has leapt from 26 per cent to 54 per cent, Royal London says.
Royal London chief executive Philip Loney says: “We have seen a doubling in the number of people with small pots and guaranteed annuities who are taking cash. That’s not necessarily the wrong thing to do – they may have debt to pay, for instance – but if we start seeing that kind of thing for people with bigger pension pots I’d be really concerned.”
He says the restrictions on transferring out of defined benefit schemes without seeing a financial adviser should be extended for pots with guarantees.
Under new rules, from April this year people will have to see an adviser before moving a DB pot bigger than £30,000 out of a scheme.
Loney says: “We should make it compulsory for anybody with a guaranteed annuity in a pot above £30,000 to take regulated financial advice before they draw out that annuity. Just like we’re doing with someone with a DB pot.”
He says Royal London policies with guaranteed annuity rates are commonly between 8 and 10 per cent, with the most generous at around 14 per cent.