Pension Freedoms - 80% exceed 'safe' withdrawal limit

Since the reforms, introduced in 2015, one in three people now manage their own pension in retirement.

There are fears that savers acting alone may spend their money too early and too quickly.

Withdrawing too much cash during stock market downturns can have a dramatic effect on how long money lasts in retirement.

Portfolios need to make large returns in the years after a downturn to get the saver back to the same position.

For years investors have relied on what has become known as the “4% rule”.  Historical data suggests that limiting withdrawals to 4% or less – in other words, taking no more than £4,000 a year from a £100,000 portfolio – dramatically increases the chances of a pot of money lasting for the 20 or 30 years of a typical retirement.

A study found that around 80% of customers took more than 4pc a year from their pension pot.  Nearly one in five (17%) took 10% or more.  A similar proportion (18%) were limiting withdraws to 4% a year.

It is impossible to tell from the data, but those with the larger pots may be relying on them entirely to fund their retirement, and so are being more cautious, particularly in the early years when they may still be working. 

Faster withdrawal rates tend to be associated with much smaller pots and this is likely to be for individuals who have other sources of income in retirement.

John BaxterComment