The DGS data also shows the median withdrawal rate decreases steeply as the value of retirement savings increases.
Those with retirement savings of over £250,000 are taking income at a much lower median rate of 4 per cent (See table below).
Fund size | Median withdrawal rate |
Under £25,000 | 10 |
Between £25-49k | 8 |
Between £50-99k | 6 |
Between £100-149k | 5 |
Between £150-199k | 5 |
Between £200-249k | 5 |
Over and including £250k | 4 |
Evolving market
The figures show how much the income drawdown market has evolved in the last four years, with retirees using it regardless of how much retirement savings they have.
While the magic 4 per cent to 5 per cent income withdrawal rule may still hold true for those with more retirement savings, this is not the case across the board.
This brings opportunities and challenges for advisers.
They need to have a thorough understanding of their clients’ entire financial situation as well as their aspirations for their retirement income.
Income sustainability
For some clients the income sustainability of their pension pot might not be so important, they may have income from other pensions and investments to rely on so they are happy to run down that particular pot.
Those people can afford to take income at a higher rate.
However for others making sure that pension lasts a lifetime will be of primary importance and regular conversations will need to be had around levels of investment risk and whether the level of income being taken is too high.
Raising awareness of the issue of income sustainability is vital in terms of helping you and your clients make good decisions around the right amount of income to take.
Setting and managing client expectations is all important.
You may have some clients who have expectations that are beyond what is achievable with their savings and advisers need to highlight the implications of this.
If this is the case then options include accepting a lower income or investing a portion of savings in more risky assets to provide potential for increased growth.
In addition they could delay taking income or save more now to boost the value of their pension pot before they retire.
All these options will have an immediate impact on the client and may initially appear unpalatable to them but it is important to raise the issue and talk through the options so the client knows where they stand.
Drawdown - more than just an investment solution
Drawdown advice is about more than putting an investment solution in place; it is an ongoing process that should help the client to understand issues around how long they are likely to live and what a sustainable income looks like.
