Pension warning: People with the smallest pots will run out of cash after a DECADE
The amount in the average pension is just £30,000 and the typical amount taken out is between £4,000 and £5,000 a year.
At this rate of withdrawals, the pension will not last 10 years, according to Sir Steve Webb, now director of policy at Royal London.
Yet the average time spent in retirement is now 20 years.
Worryingly, those people with the smallest amount saved for their old age are not taking professional advice or using the Government’s free guidance service
Sir Steve famously said as minister that people should be trusted with their own pension pots, and that he was “relaxed” about the possibility of people spending their savings on a Lamborghini sports car.
But his analysis found people with the biggest pension funds are the most cautious, in some cases taking less than a £1,000 a year from a pot worth £261,000.
“Managing your money in retirement is far from easy, which is why those with larger pension pots generally take professional advice to make sure they don’t run out too quickly,” he said.
“What is worrying is that people with smaller pots are less likely to take advice and more likely to run out of money by running down their pension savings too quickly.
“It’s easy to forget than you can easily be retired for twenty years or more and your savings have to last a long time.
“It is vitally important that as many people as possible get advice and guidance to make sure their hard-earned savings are still there to support them in later retirement.”
The pension freedoms were introduced in 2015 to give over-55s a wider range of choices over how they use their pension pot.
People can receive free guidance about this from the Government-backed Pension Wise service and they may also choose to take separate financial advice.
The usual amount taken out of pension pots of all sizes each year is in the £3,000-£4,000 range.
Royal London looked at data from a sample of more than 17,000 customers who were supported by financial advice to see how they were handling their drawdown pots in retirement.
More than a third were taking out between three and six per cent of their pension pot per year, seen as a broadly sustainable amount.
More than a quarter were withdrawing four and six per cent annually with 13.79 per cent withdrawing four to five per cent and 13.31 per cent taking five per cent to six per cent.
A further 9.71 per cent were withdrawing between three and four per cent.
At the other end of the spectrum, one in six (16.88 per cent) were taking out over 10 per cent and these tended to be savers with the smallest amount of savings.
Sir Steve said: “Our data shows that for those with larger pots current withdrawal rates for those taking advice are typically in low single figures – there is no sign of ‘Lamborghinis’ in our data.
“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.
“This data suggests that for advised customers there is little reason for concern that pension freedoms are being used irresponsibly, but does show the potential advantages in getting more people take advice and guidance at retirement.”
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