Jump in pension plans being accessed for the first time

The number of pension plans accessed for the first time jumped by nearly a fifth (18%) in 2021/22 compared with the previous year, according to the City regulator.

Some 705,666 plans were accessed for the first time during 2021/22, the Financial Conduct Authority (FCA) said.

Sales of annuities, which give a guaranteed income in retirement, rose by 13% annually in 2021/22, with 68,514 sales recorded.

Tom Selby, head of retirement policy at AJ Bell, said: “Annuity sales have fallen off a cliff over the last decade or so, in part as a result of the paltry rates on offer and in part because of the popularity of the pension flexibilities introduced in 2015.

“Rising gilt yields has boosted the annuity rates insurers can offer, which in turn should make annuitisation a more attractive option.

“It is vital for UK savers that there are both healthy annuity and drawdown markets, so the rise in annuity sales and recent improvement in rates is good news.

“All too often, retirement is presented as an ‘either/or’ choice between annuities and drawdown. In reality, the right option will generally be a combination of both.

“For example, you could use an annuity to cover your fixed costs in retirement while retaining flexibility and the opportunity for investment growth with the rest.

“The annuity rate you can get also tends to get better as you get older, so it can make sense to opt for a flexible income when you’re younger before shifting to an annuity in your 70s or 80s. The key is building a retirement income plan that fits your needs and lifestyle.”

Around a third (33.4%) of plans accessed for the first time in 2021/22 were held by people who took regulated advice, edging up from 32.7% in 2020/21.

Andrew Tully technical director at Canada Life, said: “Today’s data shows that the pandemic paralysis evidenced last year has clearly worn off with pension access increasing by almost a fifth.”

He added: “People are withdrawing money from their pensions in far greater numbers than last year while this could be a reaction to the pandemic when people generally had less opportunity to purchase some of the big ticket items such as holidays and cars.

“On the other hand, this could be the start of people raiding their pensions to plug a gap in income or help younger relatives on to the property ladder.”

Mr Tully continued: “It’s reassuring to see that a third of plans accessed were by people who had received regulated financial advice.

“The retirement landscape is complex with plenty of potentially costly pitfalls.”