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Providers warn on pension freedoms as withdrawals top £8bn

Pensions-savings-retirement-piggy bank

Some savers may be in danger of running out of retirement savings by withdrawing too much from their pension pots too soon, the Association of British Insurers has warned.

Figures on the first year of pension freedoms show 57 per cent of savers have withdrawn less than 1 per cent in the last quarter.

However 4 per cent of people had withdrawn 10 per cent or more of the cash in their pension.

The ABI says some savers were taking their who pot in one go but it could not tell if those people had multiple pots or other regular income.

ABI long-term savings and protection policy director Yvonne Braun says: “There may well be other factors at play here, such as people having other retirement income, for instance final salary pensions or multiple pots.

“But this is a warning sign that requires further investigation. We need a full picture of these customers’ circumstances and income, which is something we urge regulators and the Government to work with all stakeholders to examine.”

Elsewhere, the data showed more than £8bn had so far been withdrawn since the start of pension freedoms in April 2015.

Lump sum payments resulted in £4.3bn being paid out with the average payment being nearly £14,000.

There were 1.03 million income drawdown payments during the year resulting in £3.9bn being paid out with an average payment of £3,800.

Since the pension freedoms reforms were introduced £4.2bn was invested in 80,000 annuities with an average fund of £52,500 and £6.1bn was invested in 90,700 drawdown products.

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. As oft repeated, I am no fan of drawdown. But I now do admit to some sympathy. Annuity rates are on the floor. Over 50% are taking no more than 1% of their fund – a crushing disappointment to them I would have thought. The others are trashing the cash and will no doubt be relying on benefits in the not too distant future.

    It highlights yet again why it is vital that pension holders not only take professional advice, but adhere to it. In other words insistent clients should be outlawed. It should be made compulsory to obtain professional advice. Instead of just sitting there taking the tax the Government should take its thumb out of its backside and do something – fast.

    Those under (say) age 70 should be encouraged to stay on at work (after all that’s what the age directive is there for) and hope that before long interest rates and hence annuities will improve. Meanwhile they may hope that their fund value will increase and they of course can continue to contribute.

    • Harry, Veebs,
      I have just taken that very course of action I needed advice for a transfer and subsequent drawdown. The cost was over £2000 but recommendation was not to transfer and look again in a few years time. The numbers were crunched and I’m absolutely happy with the advice but that is a whole years pension contributions for me and advice is just unaffordable. I have a decent pension pot but still have to find the money to pay for advice, not everybody can.

      When interest rates and annuity rates improve I would expect inflation rates to also be on the rise. Working to 70, not all of us expect to be able to do that or be healthy enough to enjoy that retirement we have saved for. We may be living longer (on average, its not a given) but many of the heath problems that blight older age are still with us, if people want to spend their pension savings they may have a very good reason.

      • Andy

        This is something in which I sympathise with you completely. The fee charged is outrageous. It is a pity I’m not still Regulated. I can tell you, hand on heart, that my charge would have been less than half that quoted to you. for just telling you to delay.

  2. Absolutely agree with Katz that financial advice – and people willing to stick to it is key. It can easily be the case that a FA does not give the news someone was hoping for so just ignores it.

    Having said that speaking from personal experience putting down hard and fast rules about percentages also does not work. The ability for people to fund a downsize / move from their pot or invest in their future life is important too. Hence it call comes back to financial advice, being able to talk through your ambitions and dreams and have a professional take an impartial and detailed look at the whole picture and help you achieve it, or as close to it as possible.

  3. Christopher Petrie 15th August 2016 at 6:30 pm

    I have no wish to sit in front of a Reluctant Customer who’s only there because the law insists he must be before he can have his own money. What kind of relationship would that be? And how attractive would pensions savings be if you had to pay thousands of pounds before you could get it out again?

    Behaviour nudging is fine; coercion is not.

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