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Pension Decumulation


Since April 2015 consumers are no longer required to purchase an annuity[1]. Instead they have a number of options, including buying an annuity, but also having the choice of purchasing an income drawdown product and accessing 25% as tax-free cash. At the time of the announcement there were debates on whether it was a good idea to give people responsibility over how they access and spend their pension pot. Some were concerned about reckless and irresponsible uses of the funds, potentially leaving some with little or nothing in older age; others felt that individuals should take increased personal responsibility for decisions about their future. At that point it was difficult to predict how people would behave in response to these extra freedoms.

Nearly two years have passed since the changes came into effect and Which? has conducted qualitative and quantitative research to explore how consumers have responded to the changes, and how they are behaving when accessing their private pension.

The qualitative research consisted of four focus groups with 30 people alongside 20 interviews between 12th and 30th January 2017. The majority of the sample consisted of consumers who had accessed their defined contribution (DC) pension pot since April 2015, and a small sample who were actively planning to do so in the next 6-12 months. Minimum quotas were set for DC pot size, product type and gender.

The quantitative research involved surveying 205 UK adults aged 55+ years who had accessed a DC pension pot they viewed as having significant value, and which was seen as an important part of their retirement income, since April 2015. Fieldwork was conducted online between 17th and 26th January 2017. Given the low incidence of the required sample there were no quotas applied and data were not weighted to be representative of the UK population.

We found that:

  • Pension decisions are complex, unfamiliar, and emotionally resonant for consumers. Assessing risks and uncertainty, trading off the future with the present, and fears of making the wrong choice all impact on consumers’ capacity to make a decision. This can result in non-rational decision-making or not engaging fully in the market.

  • Most people did look at other providers and researched using various sources, however this didn't necessarily convert to switching.

  • Some consumers felt that there was information overload, or that the information was too complex. Those who used an IFA were generally more confident in their decision, compared to those who didn't.

  • Many people accessed their pension prior to retirement, most often to withdraw the 25% tax-free cash amount.

  • For the consumers we surveyed there was roughly an even split between those who purchased an annuity and those who purchased an income drawdown product. Annuities tended to be favoured by those who wanted a guaranteed income and peace of mind, whereas income drawdown products were favoured by those who wanted flexibility and control.

Accessing pensions pre-retirement

The employment landscape has changed for older adults over the years: the default cliff-edge retirement age of 65 years has been formally removed and the latest figures state that 10%[2] of people aged 65+ are employed. It is in this context, of increasingly flexible approaches to retirement, that people are making decisions regarding drawing down their pension savings.

In our sample, the majority (68%) of those who had accessed their pension pot were employed. Similarly in our qualitative research we found that some people who had accessed their pot were still employed, and a few were still accumulating their pension.

Our quantitative research, of people who had accessed one or more of their pension pots, found that 43% were aged between 55-59 years. The general behaviour of our sample in this age group was that people were “dipping into” their retirement funds pre-retirement, but not making a substantive decision (i.e. taken out an annuity; income drawdown[3]; taken wholly as cash). Of this group 84% withdrew cash, however only 1 in 10 (9%) took out all their pot as cash. The most frequent action (56%) was to withdraw 25% or less as tax-free cash. Our qualitative research found that reasons for this “dipping in” were often in response to an immediate requirement for income, for example to pay off debts or fund a big event/ item. There were also some people who felt they should access cash now, as they feared rule changes.

Overall our qualitative research found that early access is more likely with smaller pots or where the pension value is low, and it was also found that early access tended to be for reasons other than to fund retirement. Often a cash withdrawal at 55 years was seen as “win-win”. However, there was little consideration of the impact an early draw-down would have on their available pot size when it comes to taking a product decision, or the impact it would have on retirement income.

Use of pensions products

Our quantitative research found that the most frequent action (56%) by consumers in our sample was to withdraw 25% or less of one or more of their pension pot/s tax-free as cash. Around 1 in 10 (13%) took all their pot as cash overall. However, for those who estimated their pension pot value was worth less than £40,000 a higher proportion (24%) withdrew it all.

A similar percentage of people purchased an annuity (20%) as purchased an income drawdown product (19%). Our qualitative research found that the reasons given for choosing an annuity included having guaranteed income, and an associated peace of mind, and wanting to put the decision behind them. However there were also some who simply defaulted into purchasing an annuity, because they were not aware of the alternatives. Income drawdown tended to be favoured by those who were aware of both options, and was chosen by those who wanted flexibility and control. However, in general it was seen as a complex and challenging option, except for the very financial capable and those using IFAs. In the qualitative research we found that the consumers of drawdown products tended to be financially knowledgeable or using IFAs.

Accessing two or more pots was more indicative of addressing people’s long term needs (i.e. purchasing annuity or drawdown products), whereas access to just one pot could just be ‘dipping in’, with the longer term decision deferred for a later date.

Making retirement income decisions

Our qualitative research found there is no single common consumer journey. Instead they tended to differ depending on the capabilities of the consumer, and the type of choices they were faced with. Levels of self-confidence and how self-directed individuals are were important individual factors. The type of choice varied according to the value of their pension pots, the reason it’s being accessed, what other income sources they have, and the sources of advice available.

General themes which did emerge, however, were:

Decisions often takes months, rather than weeks.

The decision about what to do with a pension pot/s is not made at a single point in time. As previously noted retirement is now a process, with many people remaining in employment past state pension age. This research found that consumers typically took months to actively consider and implement the options available to them, with an even longer time frame required for deciding accompanying life decisions such as when to fully retire.

This longer period of time, however, juxtaposed against a relatively small engagement window. We found consumers often felt that there is no point in planning too far in advance, due to the chance of changes in personal circumstances and potential rule changes.

Retirement income planning is considered complex and daunting. As a result non-rational factors (as well as rational) can affect choices.

In general, judgements on long-term financial products are especially difficult for consumers as they require complex logical assessment (e.g. risk, trade-offs between the future and the present), for a one-off decision[4], in an emotive context (e.g. fear of failure) .

Our qualitative research found that, for those who were thinking of accessing their pot in the next 6-12 months, the unknowns of health and longevity, investment performance fluctuations and potential for government rule changes meant that many found it difficult to know what to do with their pension pot. In addition these uncertainties were placed in an emotional context of fearing making the wrong decision and the risks that would associated with this.

For some people the fear of making the wrong decision, and or the complexity of the decision, can lead to inertia or fatalism, reducing engagement in the market. For example, some consumers who chose an annuity defaulted into this decision as they were not aware of alternatives; others chose it because they simply wanted to put the decision behind them.

For those who did try and engage in the market the difficulty of making a decision was exacerbated by the lack of common language and transparency - meaning it was seen as difficult to make product/ provider comparisons and assess implications. Others did not always consider all they needed to in order to make informed decisions, for example trade-offs, risks, costs and tax.

Other non-rational factors influencing choice included trust- our qualitative research found that a lack of trust can prevent consumers from seeking advice or considering switching. There is greater faith in recognisable brands and previous relationship with providers and advisor is very influential.

Consumers may not be knowledgeable about all the important features and variety of products.

Lack of knowledge can also be a problem. Whilst consumers were generally knowledgeable about annuities and income drawdown (see chart below) there was a level of confusion around whether you can switch providers if you’re not happy. For each product around a third of people in our sample said they didn’t know (36% for drawdown and 35% for annuity); a fifth (22%) thought that you could switch annuity providers, whereas in reality you can’t; and nearly a fifth (17%) thought that you couldn’t switch a provider of a drawdown product, whereas in reality you can. Nearly 4 in 10 (37%) of those in our sample didn’t know whether you could change the amount you receive in an annuity in a particular month or year if you need to; a fifth (20%), incorrectly, thought you could.

Consumers look for information and advice when making retirement income decisions.

As these are such complex and critical consumer decisions it is of little surprise that seeking expert third party advice was very common, with consumers’ own pension providers and IFAs the most frequently used. These were also considered the most influential sources on how to access DC pension pots and which provider (if applicable) to choose. This was followed by free advice from a government/ body service and then research online.

Existing pension providers are often the first port of call.

Half (53%) of consumers said they used their existing pension scheme provider when deciding how to access their DC pot; and of these 4 in 10 (42%) said that their existing pension scheme provider was the most influential source of information for this decision. Qualitative research found that providers were often the first port of call and most people felt the information provided by their own provider to be comprehensive. However, others felt that their provider was reluctant to engage with them directly as the consumer, preferring to deal with IFAs.

FCA regulations require that consumers engaging with their provider should be told about the existence of Pension Wise – the guidance guarantee service- and should be given relevant risk warnings, such as warning of the tax implications of the consumer’s decisions. In our quantitative sample, of those who said they could recall their conversations with their pension provider, two thirds (68%) say they recall their pension provider providing information about the option for them to contact Pension Wise; a similar percentage (67%) said they recalled being told that they could get paid advice from and independent financial advisor; 8 in 10 (79%) said they recalled being told about the future implications of their decision (e.g tax, risk). For the majority of people this information was not new - 79% said that they already knew the information before being told by the provider. Of the 47 people who said that it was new information 16 said that it affected their choice, 31 said it didn’t.

Independent Financial Advisors (IFAs) are very influential when used, and consumers tend to be confident in their decision if they’ve used an IFA.

4 in 10 (40%) people in our sample used an IFA when deciding how to access their pot, and of these around 9 in 10 (93%) said that they were most influential source. For those who purchase an annuity/ income drawdown product half (49%) used an IFA, and of these 100% said that the IFA was the most influential course of advice.

Most users of IFAs were satisfied with the advice provided and using an IFA contributed to consumers’ confidence in the decisions they had made. Usage also led to consideration of additional options.

Amongst those who didn’t use IFAs our qualitative research found there was considerable scepticism of them, for example regarding their quality, and it was regarded as difficult to find a good IFA. It was also highlighted that IFAs were out of reach for some people.

Government advisory bodies are used by less than half of our sample.

Whilst there was high claimed awareness of government advisory bodies, and what they do, in our quantitative research[5] ,our qualitative research found that there was low awareness of phone and face to face guidance from Pension Wise. Moreover despite self-reported awareness, only 36% of consumers said that they used government advisory bodies as an information source on options and 27% on provider choice. The main reservation was that the information was top-line and too basic.  

Consumers say they do look around, but they don't necessarily switch provider.

4 in 10 (38%) of those who took a product remained with their current provider, although of these nearly half (47%) said that they actively considered other companies. Nearly 6 in 10 (57%) of those who remained with their provider said that they did so because they considered them to be the best value for money; half (47%) said that they trusted them and 4 in 10 (43%) said that it was the most convenient option. In our qualitative research we also found that trust emerged as a strong feature in this decision making space, and that a previous relationship with a provider was influential in choice making. Value for money was not mentioned in the qualitative research as a reason for staying with their provider. This discrepancy may be expained by the fact it was prompted in the quantitative research (in a list of reasons), and people may have post-rationalised and selected it.

6 in 10 (62%) consumers in our sample switched to a different provider to purchase their product. Of these the average number of providers consumers said they considered when purchasing their product was between one and three.

The percentage of people switching to another provider increased for the following groups - those who chose an income drawdown product (28 people out of 38); using an IFA (79% switched); having a pension pot of £100k+ (14 out of 19 people switched, compared to 27 out of 49 for less than £100k). It is expected that these variables will often encompass the same people.

In our quantitative sample the people who purchased an income drawdown product were more likely to switch providers, whereas for those who took an annuity they were evenly split as to whether they stick with their current provider or switched. Out of the 42 people who purchased an annuity in our sample, 20 people took it from their existing provider and 22 from a different provider. Whereas those who purchased an income drawdown product were nearly 3 times more likely to switch providers (exiting provider n=10, switched n=28).


Our research indicates that pension decumulation decisions are not necessarily simply binary, or even directly associated with moving from work into full retirement, instead people are commonly accessing their pots far more flexibly. Making a retirement income decision is a lengthy process and is not made and implemented at a single point of time. Many people in our sample accessed their pension prior to retirement; most often to withdraw the 25% tax-free cash amount, and there were indications that at a later point they would purchase an annuity or income drawdown product.

In our quantitative sample there was roughly an even split between those who took an annuity and those who decided on an income drawdown product. Income drawdown tended to be favoured by those who were aware of both of the options and those who took an income drawdown product tended to be financially confident, or using an IFA. Annuities tended to be chosen by those who wanted a guaranteed income and peace of mind, whereas income drawdown was favoured by those who wanted flexibility and control. 6 in 10 people switched to a new provider for their product and this percentage increased for those who used an IFA, who chose and income drawdown product or who had a pension pot of £100k plus.

Pension decisions are complex, unfamiliar, and emotionally resonant for consumers. Assessing risks and uncertainty, trading off the future with the present, and fears of making the wrong choice all impact on consumers’ capacity to make a decision. This can result in non-rational decision making or consumers not fully engaging in the market. Decisions can also be made difficult due to information overload.

Most people in our sample said that they looked at providers other than their current one, and researched using various sources. These included receiving advice and information from IFAs and their own providers- consumers in general reported than were happy with the service that they received from these.

As with any long-term financial decision consumers find making a retirement-income choice difficult. Those who used IFAs were confident in their decision, but not everyone used an IFA and many cannot afford to do so. It therefore remains important to consider for the future how all consumers’ needs can be met when navigating this long decision-making process.


[1] An annuity is a financial product that requires an upfront purchase payment, that provides you with a guaranteed income payable for either the rest of your life or a fixed number of years.

[2] ONS UK labour market: May 2017. Table 1: Summary of UK labour market statistics for January to March 2017, seasonally adjusted.  

[3] Income drawdown products allow you to take income from your pension while the fund remains invested. You will be able to keep your funds invested and draw down income directly from it as long as funds last.

[4] Financial Markets Authority (April 2015) Using behavioural insights to improve financial capability. 

[5] Pension advisory service 65%; money advice service 65%; pension wise 64%.

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