Personal PensionAug 15 2016

ABI: Some savers withdrawing ‘too much’ from pensions

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ABI: Some savers withdrawing ‘too much’ from pensions

Some savers are withdrawing too much money from their pension pots too soon, according to the Association of British Insurers, as figures show payouts reached £8.2bn in a year since the freedoms were introduced.

In the first three months of this year, marking the final quarter in the first full-year since the pension freedoms were introduced in April 2015, 4 per cent of UK savers - or 3,379 people - had withdrawn at least 10 per cent of their pots.

The data also found many others has chosen to cash in their whole pot in one go.

However, the ABI pointed out that some savers could have multiple pots or other regular sources of income.

Despite the minority of savers possibly taking out too much from their pots, the association indicated the majority of savers are taking a “sensible approach”, with 57 per cent pots taking out just 1 per cent or less during the last quarter.

Overall, in a complete year since the reforms, the figures show payouts hit the £8.2bn mark, of which £4.3bn was paid out in lump sum payments averaging at £14,500, and £3.9bn was paid out via drawdown payments amounting to an average of £3,800.

But this is a warning sign that requires further investigation. Yvonne Braun

Yvonne Braun, the ABI’s director of policy, long-term savings and protection, said: “The data shows the freedoms have been implemented successfully and are working as intended.”

However, she said the data also suggests a minority are withdrawing too much too soon, and said factors such as people having other retirement income, final salary pensions or multiple pots could be at play.

“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.”

Figures also show sales for annuity products have fallen in the second quarter of this year, with £950m invested, compared to £1.1bn last quarter.

Ms Braun said the fall in annuity sales in the most recent quarter reflects ongoing pressure on rates.

“This will not have been helped by the recent decision to lower interest rates to a 300 year low, and further quantitative easing measures.”

Matt Wiltshire, IFA at Niche Independent Financial Advisers, said: “These figures confirm what we have seen in terms of client’s through the door.

“Many clients have used the freedoms to supplement other income, many of whom are planning to use more of their smaller pots to bolster their income between their desired retirement age and the state pension age.

“This seems like a sensible way of utilising these pots to help clients enjoy their retirement.”

Mr Wiltshire said taking financial advice can help clients understand the “benefits and pitfalls” of the freedoms, adding it is likely that many of the people taking portions of their pensions using flexi-access will have sought advice or at least information regarding the freedoms.

“But the majority of full encashments, I would imagine, are largely non-advised clients who have pensions under the £30,000 threshold.”

katherine.denham@ft.com