New ‘retirement income market’ data published by the FCA today shows that in the period October 2022-2023, around 56% of all pension pots accessed were cashed out in full, compared with just over a third (36%) in some form of drawdown and just 8% used to buy an annuity.
One striking feature of the figures is the fact that the proportion of pots cashed out in full has been consistently in the 50-60% range in every six month period since the start of pension freedoms.
The pension pots most likely to be cashed out in full are, not surprisingly, those of the lowest value. In the latest six month period out of just under 205,000 pots cashed out in full, around two thirds (137,000) were worth under £10,000 and nearly nine in ten (184,000) were worth under £30,000.
Looked at by age, around 70% of full encashments are by people in the 55-64 age group, with most of the rest cashing out before the age of 75.
Commenting on the figures, LCP partner Steve Webb said: “These figures highlight the fact 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. 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. But with dwindling numbers of retirees having Defined Benefit pensions to fall back on, 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”.
