British savers are being warned that they are taking cash from their pension pots at ‘unsustainable levels’ and risk not having enough money to see them through their retirement.
Latest data from the Financial Conduct Authority (FCA) reveals that savers with smaller pots – typically between £10,000 and £100,000 – were taking money at high withdrawal rates.
The figures also showed that 375,000 pots were emptied at the first time of access with nine out of ten being worth less than £30,000.
Savers with pots in excess of £250,000 tended to be more cautious.
Those making regular withdrawals are taking cash at an annual rate of 8% or more a year which experts are warning will leave them with a shortage of cash in their later retirement.
Aegon pensions director Steven Cameron, said: “While those with tiny pots who are fully encashing them may not need advice, the worryingly high proportion taking large withdrawals of above 8 per cent really do need help in understanding this level of income is not sustainable for life.”
Stephen Lowe of Just agreed, saying: “Of those who are using their pension funds for income, 42 per cent were taking more than 8% a year from the fund which is an increase on the 40% recorded in the previous period.
“Most experts agree that level of withdrawal is highly likely to end up exhausting the fund early in people’s remaining lifetimes.
“These are not people whose funds are so big they don’t need to worry. In fact, the larger the fund, the more cautious the withdrawal rate.”
Andrew Tully of Canada Life warned savers about exercising their pension freedoms without taking professional advice, saying they could be hit hard in the future.
He said: “The pension freedoms continue to be hugely popular, but with this freedom and choice comes huge personal responsibility.
Five years in we continue to see a drift away from financial advice as people choose to DIY drawdown.
“While others choose to strip their pensions at what most professionals would argue is an unsustainable rate of income my concern is we could be storing up trouble for the future if this data continues to tell a similar story in the years to come.”
The industry is also concerned that the number of people taking regulated advice about their pensions fell by almost 10% in the half year to March.
However, 63% entered drawdown with regulated advice being taken by the saver and a further 10% received guidance from the government’s Pension Wise service.