Accessing pension pots early is ‘the new norm’: FCA

Its data shows that almost three quarters (72%) of pots that have been accessed are by consumers under 65.

Most are choosing to take lump sums rather than a regular income, with over half (53%) of pots accessed fully withdrawn.

However the FCA notes that fully withdrawn pots are mostly small with 90% below £30,000, and 94% of consumers making full withdrawals had other sources of retirement income in addition to the state pension.

Over half (52%) of fully withdrawn pots were moved into other savings or investments which the FCA believes is due to a "lack of public trust in pensions".

Additionally, consumers are increasingly accessing drawdown without taking advice. Before the freedoms, 5% of drawdown was bought without advice compared to 30% now.

The FCA is now considering whether additional protections should be put in place for consumers who buy drawdown without advice.

It will also ask the government to consider proposals to enable consumers to access their savings early without having to make a decision about the remainder of their pot.

Christopher Woolard, Executive Director of Strategy and Competition at the FCA, said: “Since the introduction of the pension freedoms, the retirement income market has changed substantially. This study looks at what has happened during this time, and gives us an early view of areas to keep a close eye on.

“We have identified areas where early intervention may be needed either now or further down the track to put the market on the best footing for the future. Ensuring this market works well will require cooperation across Government, regulators, the industry and consumer bodies.

“We will work closely with stakeholders to make sure we are clear on the actions we are best placed to lead.”

Tom McPhail, Head of Policy at Hargreaves Lansdown, added: "This report looks like a regulatory cry for help; the FCA seems to be trying to put the pension freedom genie back in the bottle. The liberalisation of pensions has proved very popular with investors but this regulatory review highlights some of the shortcomings in the system.

"The FCA is looking at a spectrum of paternalistic interventions, such as price caps and governance committees but we’re not sure this is in consumers’ best interests. They have expressed concern about a lack of competition in market place, yet the majority of the measures proposed here seem likely to stifle competition: better investor engagement is likely to lead to better competition."