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41% in drawdown risk running out of money

5 April 2018

AJ Bell has warned that two out of five people are making annual withdrawals of more than 10% of their fund, running the risk of a shortfall. 

Analysis by AJ Bell found that on average, people were withdrawing £6,612 annually from an average pension fund of £104,000. With an average expected investment return of 4.83%, these withdrawal levels would last 27 years. Even at significantly lower returns of 2%, pensioners could expect to make withdrawals for 18 years at these levels.

In contrast, the 41% of respondents withdrawing more than 10% of their fund could potentially run out of money in just eight years.

The findings showed that 68% of people are worried about running out of money in retirement, with women expressing more concern than men. AJ Bell said “the only saving grace” is that on average, income from personal pensions accounts for just 31% of people’s overall income in retirement.

Senior analyst at AJ Bell, Tom Selby, said the shift in consumer behaviour “needs careful monitoring.”

He said: “At a single stroke the pension freedoms have completely changed the way people can use their pension savings.  Annuity sales have fallen off a cliff and the majority of people are now using flexible withdrawals to provide their retirement income.

“On the whole the picture is quite encouraging, with most people making withdrawals that appear sustainable.  The danger though is that there is still a significant proportion of people that are making withdrawals at levels that have little chance of lasting as long as they need them to.  Anyone withdrawing more than 10% of their fund needs to have a careful think about whether that is a realistic level.”

Selby said in order to maintain those levels over 20 years, people would need “outstanding investment returns,” or be confident that other sources of income will be sufficient should the pension fund run out.

“Running out of money in retirement is a concern for over two thirds of people so making sure withdrawals are being made at a realistic level is absolutely essential,” he added.

The analysis also showed that almost two thirds (61%) of people who have taken advantage of the pension freedoms to take withdrawals have taken some kind of advice or guidance. However, people who withdraw all of their pension savings as a lump sum are significantly less likely to seek advice. Almost half (48%) did not seek any kind of help or guidance.


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