LONDON (Reuters) - Most British savers retiring between July and September last year fully cashed out their pension pots after rule changes, the financial markets regulator said, feeding concern they are not seeking financial advice.
Under the new rules, announced in April 2015, individuals no longer need to buy an annuity, or income for life, at retirement with their pension savings and can instead buy more flexible retirement products or take it all out as cash.
However, some in the industry remain concerned that people could make poor investment decisions and be financially crippled in old age if they fail to get quality advice.
Those with a little more money put aside could also fall into a higher tax bracket if they take too much out at once.
Pursuing its analysis of the impact of the rule changes, the Financial Conduct Authority on Thursday released the second in a series of quarterly reviews detailing how individuals are using the new freedoms.
In its report, the FCA said 120,969 pensions, or 68 percent of those accessed during the period, were cashed out, of which the vast majority - 88 percent - were for pot sizes of 30,000 pounds ($44,000) or less.
Just 13 percent of retirees opted to use their savings to buy an annuity, the FCA added, while 30 percent of people had taken some or all of their money using drawdown products.
A spokesman for Britain’s finance ministry said savers should “take their time, shop around and understand their options before making a decision,” pointing to the government’s free Pension Wise guidance service.
Of those who fully cashed out a pot of 250,000 pounds or more, one in five did so without seeking professional advice or using the Pension Wise service, Old Mutual Wealth, a unit of insurer Old Mutual, said.
“This is concerning as they would likely have been subject to a substantial tax hit on the withdrawal and there is the potential that they did not fully understand the tax implications of their decision,” said Jon Greer, pensions technical expert at Old Mutual Wealth.
Citing previous research undertaken with pollsters YouGov, Greer said much of the money may have been used to invest in buy-to-let property but, going forward, increases in the tax paid on second homes would likely curtail demand.
($1 = 0.6865 pounds)
Additional reporting by Carolyn Cohn; Editing by Ruth Pitchford