November 2018
Our retired nation is depleting their pension funds at a higher rate according to the latest data from regulator the Financial Conduct Authority (FCA).
The FCA data shows the average annual pension withdrawal rate jumped more than one percentage point over the last two years, reported Professional Adviser.
The regulator’s data shows that a withdrawal rate of 8 per cent is the most popular rate for pots worth up to £249,000. Within these pots the bias towards an 8 per cent rate is more if the pot is smaller. For larger pots worth £250,000 or more the most popular rate is 2 per cent. Overall, the number of plan-holders that are withdrawing 2 per cent fell by more than two-thirds.
The total number of plans where a regular withdrawal is made has remained at a consistent level of approximately 276,000.
Rachel Vahey, product technical manager at Nucleus Financial, is not surprised at the high rates of withdrawal for the smaller pension pots. She said: “People are using the pension savings to fund income needs now rather than set up a sustainable income.
“But the higher rates for the medium-sized pots is more surprising. It is worth pointing out that these figures are a snapshot. We do not know for these people their personal circumstances, what other income they have, and their health.”
She added: “Setting up withdrawal rates over 8 per cent is obviously unsustainable - the pot of money stands a much bigger chance of running out sooner.”
Aon’s Adam Burn suggested that as the withdrawal rate of 8 per cent is the most popular rate for pots worth up to £249,000, this would seem to indicate that individuals are not looking at the percentage of the pot but more likely the monetary value of the income they are taking.
He said: “Whilst we continue to assess the FCA data to try and understand the retirement market, the decisions individuals are making and the impact of the still recent pension freedoms, we can’t be 100 per cent certain of the outcomes without continued analysis.
“The reality of the retirement situation is that many new retirees have been in the workplace since the 1970s or 1980s. During these periods, final salary schemes were prevalent so many of this new wave of retirees may have some defined benefit (DB) in payment to provide a base level of income meaning they may be using the defined contribution (DC) fund to finance their early retirement bucket lists, safe in the knowledge that they have a guaranteed income for their later years.”
He added that it was possible that some of these retirees will not yet have accessed their DB pension but are using the DC pension to fund early retirement until the DB scheme commences and “therefore erosion of the fund is not an issue for them”.
But Burn highlighted that “the real concern” here is not the withdrawal rates but the fact that not all retirees are seeking appropriate professional advice relating to retirement planning.
He warned: “Increased education of the general public will lead to greater understanding however, regrettably, I suspect we will need to see some major negative situations to be highlighted before many seek professional assistance.”
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