Toby Larkman, Managing Director, Wealthtime
Everywhere you look, the pressures on the UK economy are increasingly hard to ignore. Chancellor Reeves faces a precarious balancing act between government spending, taxation receipts and fiscal rules, all against a backdrop of persistent inflation and relentless cost-of-living concerns.
Uncertainty hangs heavy, and with the Autumn Budget in November edging closer, the rumours of possible tax hikes and restrictions on tax-free cash from pensions are growing louder. It’s hardly surprising then, that many of those approaching or already in retirement are anxious about their finances, and at real risk of being pushed into making snap decisions today that they may come to regret tomorrow. And to add to the burden on retirees, since pension freedoms opened up flexibility a decade ago, retirement income choices have only grown in scale and complexity.
This shifting landscape should be an opportunity for advisers. These often irreversible decisions are precisely where professional advice can make the biggest difference. However, while pension pots are being accessed faster and in larger amounts than ever before, advice uptake isn’t keeping pace. Too many people are making retirement decisions without guidance. Recent FCA data covering the tax year 2024/25 lays out the scale of the challenge[i].
The FCA’s data underlines what advisers already know: without regulated advice, retirement decisions are fraught with risk, but with the right support, they can be steered towards decisions that protect their future as well as their present.
Toby Larkman, Managing Director
The opportunity for advisers
Almost a million (961,575) pension plans were accessed for the first time, compared with 885,455 in 2023/24, an increase of 8.6%, and continuing the upward trend in pension access seen in recent years. Yet only 30.6% of those accessing their pots for the first time sought regulated advice, a figure largely unchanged from last year.
Total pension withdrawals reached £70.9bn, up 35.9% from £52.2bn in 2023/24, with persistent inflation likely forcing reliance on pension money to meet day-to-day living costs. Similarly, drawdown sales leapt 25.5% from 278,977 in 2023/24 to 349,992, reflecting the pressure of continually rising living costs felt by many of those aged 55 and over.
Annuity sales rose more modestly, up 7.8% from 82,061 in 2023/24 to 88,430, no doubt due to improving rates thanks to higher long-term interest rates – annuity rates reached their highest point of the decade in June[ii]. The increase in sales also highlights the fact that many retirees still seek the comfort of a guaranteed income over the uncertainty of drawdown.
At the same time, a record £18.3bn was taken as tax-free cash, a 62.7% increase on last year. These unprecedented levels were no doubt fuelled by heated speculation around potential rule changes earlier in the year.
Unsustainable income withdrawal levels are also increasingly common. An astonishing 259,507 plans had an annual withdrawal rate of 8% or above, up 15% year on year, which raises real questions about people’s long-term financial resilience. Taking income at unsustainable levels is becoming a major issue, especially as 30% of plans with an annual withdrawal rate of 4% or above were non-advised.
A total of 326,061 pots were fully withdrawn without advice, a slight decrease of 1.5% from 331,097 the year before. Yet this included 2,471 worth over £100,000, up 5.5% from 2,343 pots in 2023/24. For those cashing in their full pot, advice uptake fell to just 20%.
Of course, some of the individuals within the data will have other sources of wealth to draw on in retirement. However, realistically, these behaviours risk storing up hardship, leaving many people short in later life. Understandably, many people are currently more worried about today, tomorrow and next month than ten and twenty years in the future. But the longevity equation doesn’t go away, and too many risk drifting into poverty later on.
The importance of advice
The FCA’s data underlines what advisers already know: without regulated advice, retirement decisions are fraught with risk, but with the right support, they can be steered towards decisions that protect their future as well as their present. While upcoming “targeted support” could be a helpful stepping stone for those unwilling or unable to seek full financial planning, it won’t replace the reassurance and rigour of personalised, professional advice centred on supporting people through complex long-term financial choices.
Retirement income decisions are becoming more complex. As the landscape shifts, advisers have a pivotal role in cutting through uncertainty, building confidence and creating financial plans that stand the test of time.
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This article is intended for regulated financial advisers and investment professionals only. Wealthtime does not provide financial advice. This information is not intended as financial advice and should not be interpreted as such.
[i] https://www.fca.org.uk/data/retirement-income-market-data-2024-25
[ii] https://www.standardlife.co.uk/about/press-releases/annuity-rates-surge
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