Author: Adrian Atkinson
Managing Director, Chartered Financial Planner - Member of the Investment Committee
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Published: May 2025
Pension freedoms, 10 years on
In October 2014, the then chancellor George Osborne used his Budget speech to announce the biggest reforms to pensions in a generation. His plan for pension freedoms – designed to give savers greater choice when approaching retirement – took everyone, including the regulator, by complete surprise. The “Budget bombshell” ripped up the rulebook and transformed the way people were able to access their pension pots. In pension terms, it was one of the biggest Budget surprises ever, one of the biggest ‘rabbits out of the hat’ moments that we’ve ever had from a pension perspective, for sure.
Before pension freedoms
Prior to the reforms, in 2015, savers only really had two options after taking their tax-free cash – buy an annuity or go into drawdown. Research shows that before 2015, around 75% of defined contribution (DC) pension pots were used to purchase an annuity, however, their popularity soon began to nosedive. The popularity of annuities continued to fall post-freedoms – and plummeted to less than 10% in 2023-24. Although higher interest rates have seen a resurgence recently, drawdown still remains the most popular option for those with pension pots of £30,000 or more.
One thing pension freedoms introduced that changed the landscape completely, was flexible drawdown.
Lamborghini fears unfounded
Despite fears at the time that people would “blow their pension pots on luxury items like Lamborghinis”, there’s little evidence that’s the case. Over the last 10 years, it is estimated over 3,831,000 pension pots will have been fully cashed in – but these are primarily smaller pots. In 2023-24, 90% of all pots cashed in were valued at £30,000 or less. Experts believe this is probably a consequence of the cost-of-living crisis hitting some retirees hard, driving them to access pension savings to help them financially.
The good…and the bad
There has been much to celebrate over the past decade – it is estimated that almost seven million pension pots have been accessed for the first time. Of course, as the name suggests, the reforms gave people the freedom to choose what to do with their retirement income.
But despite the obvious upsides, it hasn’t been all butterflies and roses. Many felt the legislation was rushed through without a great deal of thought by Osborne’s Conservative government. As a result, the regulator didn’t have time to put sufficient protections in place and had to play catch up. In the years that followed the freedoms, the FCA made a number of interventions – the main regulatory change being the Retirement Outcomes Review. It also introduced a whole range of warnings, with providers required to start informing consumers of the risks of taking various courses of action.
The next 10 years
As we enter the next decade of pension freedoms, what changes can we expect to see? For a start, the number of people relying mostly on DC pensions for their later-life income is soaring, as defined benefit pensions slowly start to die out. The introduction of targeted support will be a gamechanger, as to whether the FCA will allow targeted support or simplified advice at the retirement stage; we are waiting to see.
A success or a failure?
As with anything in life, too much choice can be a bad thing. Before the reforms, there was very little opportunity to fully encash pension pots. The concern is that some have taken their money out irresponsibly, without proper guidance or advice, something that pension freedoms made possible.
The consequences of freedoms have been felt in recent years, with unsophisticated savers putting money into high-risk investments. Scams have been one of the largest impacts of the reforms. So, the question is: have pension freedoms been a success, or a vehicle for unadvised consumers to make poor decisions?
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Opinions constitute our judgment as of this date and are subject to change without warning. The value of investments and the income from them can go down as well as up, and you may not recover the amount of your original investment.
The information in this article is not intended as an offer or solicitation to buy or sell securities or any other investment, nor does it constitute a personal recommendation.
The information contained within this blog is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.
