Pen­sion free­doms: 80pc ex­ceed ‘safe’ with­drawal limit

The Daily Telegraph - Your Money - - FRONT PAGE -

The first de­tailed anal­y­sis of how fi­nan­cial ad­vis­ers are us­ing the pen­sion free­doms to help their clients re­veals how quickly sav­ings are be­ing de­pleted. Be­fore the re­forms, in­tro­duced in 2015, few peo­ple kept their sav­ings in­vested into re­tire­ment and those who did tended to use a fi­nan­cial ad­viser. But the sit­u­a­tion has re­versed and now one in three peo­ple man­ages their own pen­sion.

The City watch­dog, the Fi­nan­cial Con­duct Author­ity, has said DIY pen­sion in­vestors face a “com­plex” land­scape and may need more “sup­port and pro­tec­tion”. Many are put off pro­fes­sional ad­vis­ers, how­ever, by high fees and the in­dus­try’s rep­u­ta­tion.

There are fears that savers act­ing alone may spend their money too early and too quickly. When the re­forms were an­nounced, one min­is­ter ac­knowl­edged that pen­sion­ers might splash their money on a Lam­borgh­ini.

With­draw­ing too much cash dur­ing stock mar­ket down­turns can have a dra­matic ef­fect on how long money lasts in re­tire­ment – a phe­nom­e­non called “pound cost rav­aging” by in­vest­ment ex­perts.

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

Anal­y­sis pub­lished today by mu­tual pen­sion firm Royal Lon­don shows what al­most 18,000 cus­tomers are do­ing with their pen­sions. Royal Lon­don only ac­cepts pen­sion savers who have an ad­viser, so the fig­ures un­cover how the pro­fes­sion­als are ad­vis­ing their clients. There is noth­ing to stop DIY in­vestors from copy­ing them.

For years in­vestors have re­lied on what has be­come known as the “4pc rule”. His­tor­i­cal data sug­gests that lim­it­ing with­drawals to 4pc 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

But many savers are likely to have other sources of in­come, writes Sam Brod­beck


An­nual with­drawals

0%-1% 1%-2% 2%-3% 3%-4% 4%-5% 5%-6% 6%-7% 7%-8% 8%-9% 9%-10% 10% or more Per­cent­age of Aver­age size cus­tomers of pen­sion 1% £261,212 2% £219,270 5% £184,569 10% £146,140 14% £121,114 13% £101,610 13% £88,890 11% £79,144 9% £72,005 6% £68,881 17% £46,247

De­spite fears, pen­sion­ers aren’t rac­ing to buy Lam­borgh­i­nis

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