With more than half of people in drawdown unaware they can vary their income or stop it altogether1, concerns have been raised that many are draining their retirement savings far too fast. Financial Conduct Authority data shows that the number of pension plans fully withdrawn at the first time of access rose by 5% in 2019/2020 to 375,000, while an estimated 90,000 retirees took an annual income of 8% or more from their funds, only sustainable through periods of very strong growth. Meanwhile, only 36% of people accessing their plans for the first time sought advice.
Low take-up of advice
Low take-up of financial advice and guidance provision means that many older people are making risky decisions they may later regret. Many investors are at risk of taking an unsustainable level of income and being left financially vulnerable later in retirement. The government’s tax takings from pensions are currently around £2bn higher than expected due to pensioners drawing large sums all at once and/or drawing so much they pay a higher tax rate. In addition, around 30,000 drawdown users are holding inappropriate investments that could later result in losses.
Accessing drawdown while the market is falling can have a negative impact on individual pension funds – a phenomenon known as ‘the sequence of returns risk’. In other words, drawing from a fund in a falling market can make it harder for the fund to recover later, as it has less capital to work with. Tens of thousands of retirees are facing a large drop in income or risk running out of money altogether by not modifying their withdrawals at the right time.
We can help
It’s important to be informed and understand all your options about pension drawdown to ensure you don’t risk financial hardship later in life. We can help to bring clarity to your retirement decision-making, so do get in touch.
The value of investments and income from them may go down. You may not get back the original amount invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.