Jessica List: The devil is in the (missing) details

Jessica List looks at the FCA's Retirement Income Market Data for 2019/20 and has a few follow up questions...

At the end of September, the Financial Conduct Authority (FCA) published its Retirement Income Market Data for the 2019/20 tax year, giving insight into how consumers are using the pension freedoms rules to access their pension savings.

There’s a lot of information available behind the key findings bulletin, and it can be tricky scanning through the numbers and trying to pick out which parts are surprising, what’s important, and which figures are alarming – or at least, which seem alarming at first glance.

Now, admittedly I’m much more of a words person than a numbers person, but there are two difficulties I always face looking at data like this.

Firstly, I think that sometimes, how things are represented can make an enormous difference. If I told you, quite truthfully, that the number of individuals who fully exhausted pensions worth £250,000+ without taking advice or guidance increased 13% in the second half of 2019/20 compared with the year before, it might set alarm bells ringing. However, if I told you that that equated to 97 people this year and 86 the year before, it’s not nearly so dramatic.

The second problem is that this data doesn’t show the underlying stories. I often read reports like this and finding myself wishing for some extra information to help give a fuller picture.

For example, one of the key statistics drawn out was that 42% of regular withdrawals were at a yearly rate of 8% or more. It definitely sounds bad.

However, there are a couple of things worth emphasising here. This isn’t 42% of all individuals or 42% of people at retirement age. It’s not even 42% of clients who have accessed a pension. It’s specifically 42% of pensions with a regular withdrawal set up, where at least one payment was made during the year. That’s already much less alarming than it first seems.

Breaking it down further by fund value, three quarters of the pensions in question were worth below £100,000, with more than half worth less than £50,000. If the concern is that the withdrawal rates are too high for the pensions to last for the clients’ lifetimes – it seems possible that in many of the cases, they were never intended to in the first place.

More questions than answers

The data tells us how much is being withdrawn from a specific pension, but it doesn’t tell us about the individual’s total pension provision, or other retirement savings they might have. How many of those savers have multiple pensions, and are withdrawing from one at a time? How many have defined benefit pensions, and are withdrawing from their defined contribution pension as a supplement, or to bridge a few years before the defined benefit pension begins? How many have used other means of saving for their retirement and are simply using up their pension first? How many are fully aware that they’re taking high withdrawals over an exceptional period but have no plans to continue at that rate long term?

I appreciate that you could answer any of those questions with the reply: ‘not all of them’.

I don’t doubt that there are savers among that 42% who are withdrawing high amounts from their only pension with little else to fall back on. But it doesn’t seem as though there’s enough information here to definitively conclude that two-fifths of people regularly withdrawing money from pensions are heading for financial disaster.

I also appreciate that bemoaning problems with statistics is not highly original. But I do think it is important if statistics like these can be used to inform opinions and justify suggestions for further changes to pension rules and regulations.

It’s important to have the full picture behind snippets like these before making assumptions about what they mean and how we should respond. With that in mind, I think it’s ok to keep questioning the data – even if it’s nothing new.

Jessica List pension technical manager at Curtis Banks