Industry experts have reiterated the need for a "robust" at-retirement framework to support savers, after data from the Financial Conduct Authority (FCA) revealed that the total number of pension plans accessed for the first time in 2022/23 increased by 4.8 per cent to 739,535.

The latest retirement income data, which covers the year from April 2022 to March 2023, revealed that uncrystallised funds pension lump sums (UFPLS) saw the biggest increase in pension plans accessed for the first time, rising by 14.6 per cent to 41,571.

The percentage of customers using the different options to access their pension remained broadly constant, as the data showed that more than half (56 per cent) of all pension pots accessed were cashed out in full, compared with just over a third (36 per cent) in some form of drawdown.

Annuity take-up fell slightly though, as the data showed that 8 per cent of all pension pots accessed were used to buy an annuity, and the sale of annuities fell by 13.6 per cent, dropping from 68,514 in 2021/22 to 59,163 in 2022/23.

Despite the growing number of savers accessing their pension pots, the overall value of money being withdrawn from pension pots fell by 5 per cent to £43,199m in 2022/23, down from £45,638m in 2021/22.

Indeed, the FCA's data showed that the pension pots most likely to be cashed out in full are those of the lowest value, as around two thirds (137,000) of the 205,000 pots cashed out in full were worth under £10,000 and nearly nine in ten (184,000) were worth under £30,000.

Changes 'urgently' needed

LCP partner, Steve Webb, highlighted the findings as demonstration that "hundreds of thousands of people reach retirement each year with very small pension pots".

"These pots would generate very little regular income if spread out over the decades of retirement," he explained, suggesting that, instead, the majority of people still judge that the best thing to do is to cash out their pension and enjoy some additional cash at the start of their retirement.

However, with dwindling numbers of retirees having defined benefit (DB) pensions to fall back on, Webb argued that we "urgently need to boost pension pots to a size where it makes sense to keep them rather than cash them in".

"With every new set of figures we see the consequences of the government’s delay in expanding automatic enrolment, and the need for urgent action to get Britain saving more for retirement," he added.

This has not been the only area of concern for industry experts, as Canada Life retirement income director, Nick Flynn, said it is "really disappointing" to see inertia continue to play a big role in retirement income decisions, with far too many people not exercising their right to shop around for not only the best rate, but also the right shape annuity.

“Improving the availability of guidance and encouraging more people to seek the help of an annuity broker or independent financial adviser, rather than simply accept the status-quo from their pension provider, will provide better lifetime consumer outcomes," he suggested.

“This is especially important as annuities are enjoying a renaissance, driven by the demand from customers seeking security in times of uncertainty, combined with the significantly higher incomes available.”

A growing advice/guidance gap

The findings have also prompted broader concerns over how savers are making crucial retirement decisions, as the FCA revealed that just under a third (32.9 per cent) of plans accessed for the first time in 2022/23 were accessed by savers who took regulated advice, down from 33.4 per cent in 2021/22.

In addition to this, Quilter retirement specialist, Kirsty Anderson, pointed out that, despite the introduction of the stronger nudge to pensions guidance in June 2022, the latest figures from the FCA suggest that the number of people booking Pension Wise guidance appointments has also fallen.

“Our experience is that many customers looking to access their pension savings already have a good idea of the action they wish to take and often do not feel they need guidance, particularly where they have already received financial advice," she stated.

"However, it is worrying that so many people who do not seek advice still appear to be opting out and going ahead without support. Taking guidance at this stage in life is a long way from becoming normalised."

Given this, Anderson argued that "something needs to change to ensure more people get help in making what is ultimately one of the biggest financial decisions they will ever make".

This was echoed by Nucleus Financial technical services director, Andrew Tully, who argued that, given the range of retirement options available, it is important consumers get good advice at the point they first access their pensions savings and on an ongoing basis to work out the best options for their individual circumstances.

Adding to this, Barnett Waddingham partner, Paul Leandro, said that while the FCA should not be surprised by the increasing levels of cash withdrawals from pension pots, they should be worried, warning that "pension freedoms opened up Pandora’s Box".

He continued: “This is further evidence that we need to create a much more robust at-retirement framework. People need to be able to better visualise their income requirements in retirement, and there needs to be a tangible way to understand the knock-on effects of taking too much cash too early.

“The current pension landscape looks dire. Not enough contributions going in, coupled with too much cash being withdrawn too early, makes for a very bleak future ahead.

"Innovation is critical to better support people’s decision making - the best time was ten years ago, the second-best time is now.”

DB to DC transfers

More broadly, the research showed that the number of DB to DC transfers continued to fall from 26,619 in 2021/22 to 18,073 in 2022/23, while the number of firms that received DB transfers also trended downwards, falling from 120 to 116 between 2021/22 and 2022/23.

OAC head of redress solutions, Brian Nimmo, suggested that recent falling transfer values are likely to have accelerated that trend as pension savers increasingly see the risk in losing the value of the guarantees in a DB pension by transferring into a DC arrangement.

"A significant number of advisers have stopped advising on DB transfers too as they decide that increasing regulation makes it too risky for their business, and the FCA's 'polluter pays' reforms may accelerate that trend," he added, predicting a continued fall in volumes over the coming years.

---