The ABI said across the first year that the reforms have been in place, a total of £4.3 billion has been paid out in 300,000 lump sum payments, which could involve some or all of the pot being cashed in, with an average payment of almost £14,500. A further £3.9 billion has been paid out from drawdown, with an average payment of £3,800.
Advertisement
Since then, anyone over the age of 55 has been free to withdraw as much as they like from their pension pots, subject to income tax.
However, thousands of investors are risking pension poverty by withdrawing too much too soon.
Instead financial advisers and retirees in the United Kingdom should use lower initial safe withdrawal rates than noted in prior research – the lower end of the range now starts towards 2.5% or 3%, says Dan Kemp.
The ABI’s first full-year figures since the pension freedoms show that £6.1 billion has been invested in over 90,700 drawdown products.
Despite record low interest rates and a cash bias among investors, £4.2 billion has been invested in 80,000 annuities since the pension freedoms were introduced in April 2015.
Savers withdrew £8 billion from their retirement pots in the first full year of pension freedoms, according to the Association of British Insurers.
The pension freedoms were created to give retirees the chance to spend their pension pot as they see fit, removing the obligation to buy an annuity and letting them access their cash with fewer tax restrictions.
Over the first year of the reforms, 41.5% of savers buying an annuity switched to another pension provider. The trade body, however, cautioned that “there are signs a minority may be withdrawing too much too soon and at rates that would see their money run out in a decade or less”.
However, the Braun was keen to point out that some savers may have multiple pots or other sources of regular income.
“There may well be other factors at play here, such as people having other retirement income, for instance, final salary pensions or multiple pots”.
Advertisement
There’s also been a notable drop in annuity sales, as had been predicted, with such products having received £950m in investment during the last quarter, down from £1.1bn in the previous three months. But this is a warning sign that requires further investigation. “We need a full picture of these customers’ circumstances and income”, Braun added. “Let’s hope these people have other sources of income for retirement, as at the withdrawal rates the numbers suggest, they will very quickly deplete their funds”. However, people should have the freedom to make the decision that is best for them. “This leads to poor value whether people are choosing drawdown, annuity or a blend of both to provide their retirement income”.
