Retirement savers face a crunch time because they are spending too much pension cash when they are younger and severely underestimating how long they will live.
Research by an investment platform found 44% of those aged between 50 and 65 were withdrawing 10% of their pension savings each year and risk running out of cash.
The study looked at 250 pension savers aged over 55 who had taken cash from their retirement savings since April 2015.
The group had £118,000 average savings.
The investment platform running the research, AJ Bell, warned that many could run out of pension cash within 12 years if they kept up the current rate of withdrawals.
Life expectancy guessing game
Tom Selby, a senior analyst at the firm, said: “It seems that people using the pension freedoms are playing a life expectancy guessing game and are often coming up short.
“The evidence from our research suggests many people might be severely underestimating how long their pension income will need to last for and as a result the levels of withdrawals they are choosing to make look questionably high in many cases.”
Half the savers in the 55 to 59-year-old age group reckoned their pension cash would last up to 20 years, while a quarter believed they would run out of cash within 10 years.
But longevity estimates from the Office of National Statistics suggest that men in this age group will live between 24 and 27 years and women between 26 and 30 years.
Pension spending gap
Savers told researchers they were drawing cash from their pensions for luxury purchases, such as holidays and new cars, with 20% spending on day-to-day bills which was the aim of allowing pension freedoms.
Most drawing the money also had other sources of pension income or were still working.
Around 47% were taking money when they needed, compared to 35% taking regular withdrawals.
“The data does suggest that there is currently an engagement gap between people and their pensions and this is something that needs to be closely monitored as we move towards the third anniversary of the new rules next year,” said Selby.