FCA figures point to no exit charges for 'relatively high proportion' of those exercising pension freedoms

The regulator conducted an "information-gathering exercise" on the fees and charges pension savers currently experience, as part of a UK government investigation into the "barriers" to defined contribution (DC) scheme members taking advantage of the new rules. It found that over 200,000 pension policies were accessed in the first three months after the rules changed in April, compared to just over 95,000 during the same period in 2013.

Of those policyholders that accessed their pension savings, 120,688 took advantage of some form of cash withdrawal, according to the FCA's research. Over 70,000 accessed some form of income drawdown option, giving them access to a regular income from their pension savings while keeping the balance invested.

Annuity sales fell to 12,418 in the first three months after the new rules came into force, compared to almost 90,000 sales during the same period in 2013, according to the FCA. An annuity is a type of insurance policy that can be purchased with a pension fund, or part of a pension fund, giving the policyholder a regular income for the rest of their life.

Commenting on the findings, pensions expert Tom Barton of Pinsent Masons, the law firm behind Out-Law.com, said that many of them were unsurprising.

"Clearly, cash and drawdown were always going to find favour at the expense of annuities," he said. "It will be interesting to know what those who take the cash are actually using it for, and whether safeguards such as Pension Wise are helping to guide good decision-making."

"When looking at statistics on the take-up of pensions freedoms, we should remember that many of those currently aged 55 or over will have a guaranteed income from a defined benefit (DB) scheme. Behaviours such as cashing-in, which are common now, might not be so common once DC matures and becomes the sole or primary source of income in retirement," he said.

Changes to the law from April this year gave members of DC schemes more freedom to access their savings in any way that they wish once they turn 55, without incurring heavy tax penalties or necessarily having to purchase an annuity. Anyone wishing to exercise these new freedoms currently has the right to free and impartial guidance through the government-backed Pension Wise service, although this does not provide regulated financial advice.

Responsibility for Pension Wise will transfer from the Treasury to the Department for Work and Pensions (DWP) from April next year, economic secretary Harriet Baldwin told the Work and Pensions select committee at an evidence session this week. However the service itself will not change, nor will its delivery partners the Citizens Advice Bureau and the Pensions Advisory Service, she said.

The government announced in June that it would take action against excessive exit fees and regulatory barriers preventing DC savers from taking advantage of the change in the law. It is consulting until 12 October on potential ways to address these perceived barriers, including the possible introduction of a legislative fee cap or an industry-led voluntary approach. The FCA's research, as well as similar work being carried out by the Pensions Regulator in relation to trust-based schemes, will inform its approach.

The FCA found that 84% of consumers aged 55 or over do not experience any exit charge, which is consistent with early Treasury estimates that suggested that "one in ten" savers into older schemes in particular had to pay this type of charge. The average pension transfer took 16 days, according to its research.

The regulator intends to continue tracking consumer choice in relation to the pension freedoms through a new quarterly survey of providers, alongside its usual supervisory work. It said that its aim was "to ensure consumers are appropriately protected and that there is effective competition in this market".

Pensions expert Tom Barton said that it was "positive" that a relatively high proportion of pension savers experienced no exit charges, "although clearly this issue is under scrutiny".

"It is also positive that the timescale for completion of transfers is relatively short, although again there is room for improvement here," he said.