Financial freedoms are allowing some retirement savers to spend their pension cash too quickly.
A minority of over 55s are likely to run out of pension cash within 10 years or less if they keep spending at their current rate, says the Association of British Insurers (ABI).
The ABI, which acts as a trade body for British pension providers, has issued statistics for the first year of pension freedoms that show 4% of retirement savers have drawn at least 10% of their funds, while many others have taken their pot as a single lump sum.
£8.2 billion taken out of pensions
The survey shows that in the first year of pension freedoms, which were introduced in April 2015 –
- £4.3 billion paid in 300,000 lump sum payments with an average payment of £14,500
- £3.9 billion paid as 1.03 million drawdown payments, with an average payment of £3,800.
- £4.2 billion invested in 80,000 annuities, with an average fund of £52,50
- £6.1 billion invested in 90,700 drawdown products, at an average investment of close to £67,500
The ABI, which is an avid promoter of poor yielding annuities, argues 41% of annuity customers gained a better interest rate by shopping around.
Yvonne Braun, the ABI’s Director of Policy, Long Term Savings and Protection, said: “This is our most detailed analysis of customer decisions to date following the introduction of the pension freedoms. The data shows that the freedoms have been implemented successfully, and are working as intended.
“The new data released shows that more than half of pots are having less than 1% withdrawn a quarter, which seems to indicate most people are taking a sensible approach.
Too much too soon
“However, the data also suggests a minority are withdrawing too much too soon from their pension pot – 4% of pots are having a tenth or more withdrawn.”
Other recent data from online fund supermarket Hargreaves Lansdown suggests that those aged in their 50s are drawing pension cash to repay debts.
The most popular way to take the money is as irregular lump sums, while leaving the remainder of the fund invested.
Annuities are most popular with the over 65s, who tend to have less money left invested and make fewer occasional withdrawals.
