Pension freedoms: 80pc exceed ‘safe’ withdrawal limit
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
HOW QUICKLY ARE PEOPLE CASHING IN THEIR PENSIONS?
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