Two months into the new freedoms and Fidelity Worldwide Investment has looked at what its direct to consumer and group pension customers1 are doing and the top five things that we’ve learned about how people are behaving to date. 

How you accumulate impacts on your retirement decisions- our direct to consumer customers are showing different behaviours from those customers who come through our group pension business. Direct customers proactively open a retirement product with us and pots sizes are generally bigger than those of our group pension customers who will often have acquired their DC pot as a bi-product of their employment. As a result, cashing out in full is low among direct customers at 6 percent of retirement enquiries compared to 19 percent of enquiries from our group pension customers. Furthermore, while 10 percent of our direct customer calls will be to discuss options, this is closer to 30 percent for group pension clients again reflecting the more proactive attitude of our direct customers. 

The dash for cash has not taken off– initially retirees were keen to withdraw monies in full from their small pots however, this seems to be just to have been initial pent up demand. Most of our direct to consumer customers just want to take the tax free cash with 61 percent of calls coming from people who want to do just that and enter drawdown with the remainder. Of this figure, half of our drawdown customers are deferring that income to take at a later date. People are willing to vote with their feet – a significant number of calls are coming from people seeking to transfer their funds as their ceding company does not offer the full freedoms.

DB benefits are not understood by retirees2– nearly one in ten (7 percent) of those calling are DB clients wanting advice on how they can benefit from the new flexibilities and seeking to transfer out. This is primarily fuelled by callers wanting to give up the DB scheme to take control of the pot should they die early. Interestingly, nearly all are put off once the cost and value of the DB scheme is explained therefore, it appears that DB benefits are misunderstood in the first instance. Tax is proving quite taxing – recent tax changes to pensions announced under the new government are on retirees’ radar. Customers are particularly concerned by the Lifetime Allowance limit with an equal split between those who are concerned about the £1m reduction and looking for protection and those who are already over the Lifetime Allowance limit and want to know their options. There are also a number of queries regarding the tax implications of withdrawing in full, or withdrawing an amount in excess of the tax free portion of the fund

Anecdotes from our telephony teams:

We continue to receive between three or four calls a week from people who are in their twenties and thirties seeking to access pension savings. Of the small amount of people calling about an annuity, half of this number wants to see if they can sell it! One customer withdrew his tax free cash to surprise his wife with a summer house. People who are choosing to take tax free cash are doing so for a multitude of reasons but primarily consist of tax free cash to pay off debts, mortgages or to buy property for the kids or as their own rental. Richard Parkin, Head of Retirement at Fidelity Worldwide Investment said:

“If we look at what people are doing since the freedoms have started, it would be fair to say that after the initial pent up demand worked its way through, the behaviour of our customers is fairly consistent.

“Most want to enjoy their money but the general takeaway is that people want to take money sensibly. Misunderstandings do exist around the value of their existing benefits such as DB schemes but, once they realise what they would give up, appetite does drop off. Observations such as this show that people need to keep doing what they are doing – namely getting to grips with what they have and not to rush any decision. It also shows that the industry must ensure that customers understand what they are doing in terms of consequences and not just executing requests regardless. “We would always urge anyone who is confused to, at the very least, speak to Pension Wise. In many cases, customers should be looking to take advice on how to organise their retirement finances as the decisions are invariably complex and often irreversible.”