Majority taking sensible approach, but some pensioners withdrawing too much too soon - ABI

The organisation called for caution among those taking out too much as it published statistics for the first complete year since the new Freedom and Choice reforms came into effect in April last year.

The ABI is also publishing new data which shows the percentages withdrawn from pension pots and from what age groups.

This new data indicates the majority of savers are taking a sensible approach, with 57 per cent of pots with 1 per cent or less withdrawn during the last quarter.

However, there are signs a minority may run dry within just ten years if they are reliant on their pension pot as their main source of income.

While the ABI said it could not know from the data which savers may have multiple pots or other regular income, in the last quarter, four per cent of pots had 10 per cent or more withdrawn, and many others are taking their whole pot in one go.

In the most recent quarter, sales for guaranteed income for life (annuity) products have fallen, with £950m invested, compared to £1.1bn last quarter. Sales of flexible retirement income (drawdown) products remain consistent, with £1.48bn invested, compared to £1.49bn the previous quarter.

Rate of withdrawal for drawdown and lump sums in Q1 2016:

Withdrawal rates

Total number of pots where withdrawals taken

Less than 1% withdrawal

45,641

1-1.99% withdrawal

16,134

2-3.99% withdrawal

10,500

4-5.99% withdrawal

1,822

6-7.99% withdrawal

1,423

8-9.99% withdrawal

835

Equal or greater than 10% withdrawal

3,379

Total plan holders making partial withdrawals

79,734

Overall, in a complete year since the reforms, the figures show for pay-outs:

Since the reforms came in, for funds invested in new products:

Over the last year since the reforms were introduced, 41.5% savers switched when buying an annuity. Other savers may have looked at different providers and chose to stay with their existing provider who could have offered favourable rates, and new data shows around half of internal annuity sales, i.e where a customer did not switch, had a guaranteed annuity rate attached.

For drawdown, 53 per cent chose to go with a different provider at the time they took money from their pension. Others will have transferred their pension before going into drawdown.

A detailed breakdown of these statistics is provided in the ABI pension factsheet.

Yvonne Braun, the ABI’s Director of Policy, Long Term Savings and Protection, said: “This is our most detailed analysis of customer decisions to date following the introduction of the pension freedoms. The data shows that the freedoms have been implemented successfully, and are working as intended. New data released shows that more than half of pots are having less than 1% withdrawn a quarter, which seems to indicate most people are taking a sensible approach. However, the data also suggests a minority are withdrawing too much too soon from their pension pot - 4% of pots are having a tenth or more withdrawn - and many other customers are taking their entire pot in one go.

“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.

“The fall in annuity sales in the most recent quarter reflects ongoing pressure on rates, which will not have been helped by the recent decision to lower interest rates to a 300 year low, and further quantitative easing measures.”