Consumer behaviour since Pensions Freedom day
It's now more than six months since pension freedoms came into force and it seems not a day goes by without a story in the press about the new options, ranging from whether the reforms are working to how people are taking their savings.
With our own early claims data on how consumers are reacting to the new environment and how we're dealing with their calls, we have some high level statistics which should give you a flavour of what's going on.
Typically we receive around 26,500 member calls a month, but from April to September we received an average of 37,000 - with a peak of over 50,000 in June. In anticipation of increased demand, we boosted helpline resources by 50% with a corresponding investment in training and development. The customer activity post the reforms indicates that:
- Less than 5% of eligible members actually contacted us for cash payments - suggesting that the vast majority are not rushing into the withdrawal of their pension savings.
- Most of the requests were for the total pot: with most of the pots worth less than £25,000 and just under half of them being less than £5,000.
- There has been no dramatic increase in requests for flexi-access drawdown which could be due to relatively low pot sizes or unfamiliarity with the concept.
- The number of members saying they've contacted Pension Wise (31%) or a financial adviser (25%) is decreasing. Figures quoted are for September 2015. This reluctance to seek impartial advice or guidance could be a cause for concern if the trend continues - unless members are finding all they need to know online.
- 99% said they understood the tax implications of the option they're choosing - which looks great but could mean they're reluctant to admit they don't understand.
- Actual claims payments were tending to take 50 minutes on average to process instead of the anticipated 10 minutes largely due to the 'Second Line of Defence' rules introduced by the Financial Conduct Authority to ensure retirees set on cashing their pension pots were made aware of the risks including tax implications when withdrawing funds.
- We've since reviewed and revised our 'Second Line of Defence' process and reduced customer error rate from 80% to 1%, improving our ability to settle payments on a first time basis and within a more acceptable timescale for customers.
- In the early months callers often expressed irritation at extra questions but were sympathetic to our obligation to help them make the right choices for their money.
Our tentative conclusions pending further research therefore determine there's no 'dash for cash' and the vast majority of members are showing restraint. Small pot withdrawals could reflect decreasing numbers of members telling us they're seeking impartial advice or guidance. And that the 'Second Line of Defence' is having some effect but may need re-thinking.