Pot plunderers are facing ruin

PENSIONERS are entering the “age of ruin” as they withdraw their retirement savings at an unsustainable rate and risk running out on average seven years before they die.

Millions face the prospect of scraping by purely on the state pension in their final years after using up their personal pension and Isa savings.

Running out of money in retirement was much less of a problem in the days when pensioners were forced to buy an annuity paying a guaranteed income for life.

That obligation was scrapped in 2015’s pension freedom reforms, which liberated the over-55s to draw cash from their pension pots when they chose.

Today, the majority of people leave their money invested in drawdown at retirement, in the hope of benefiting from stock market growth.

Drawdown is much more flexible than buying an annuity but volatile stock markets have hit pension values while the cost-of-living crisis has forced many Britons to raid their depleted pots to cover everyday living costs.

Pensioners need an income of £23,300 a year to enjoy a “moderate” retirement, a figure that includes the state pension, according to the Pensions and Lifetime Savings Association.

The new Age Of Ruin report by financial planner Money Minder said that the average personal pension fund at retirement is £190,000, which would fall to £142,500 for someone who took their 25 per cent tax-free cash at outset.

If they used that to generate a “moderate” retirement income the money would run out by age 78.Yet average life expectancy at state pension age is 85.

Managing director Ray Black said pensioners run the risk of running out of money altogether with years to go: “They will still have access to the state pension but that’s nowhere near enough to maintain the same standard of living.”

As well as everyday spending, pensioners will want to pay for home improvements, cars and holidays after retirement, too, Black said, putting more pressure on their savings.

He urged everyone to regularly review their pensions and investments to see whether they are putting aside enough.

Drawdown can help your money grow but if stock markets fall – as they did last year – then its value could dramatically shrink instead.

Stephen Lowe, group communications director at retirement specialist Just Group, said that as a rule of thumb, savers can withdraw 4 per cent of their pension each year without depleting it: “Worryingly, almost half are drawing double that amount.”

Britons have now withdrawn more than £60billion from their pensions since 2015, at a rate of around £10bn a year.

Tom Selby, head of retirement policy at AJ Bell, said early access increases the risk of running out of money in retirement. “You will also miss out on all future investment growth on the money that you withdraw,” he added.

He said anyone planning to increase their withdrawals to maintain their spending power during today’s inflation should calculate whether that is sustainable in the long run.

Since 2016, savers have been able to pass on any unused pensions free of inheritance tax when they die.

“Pensions are a good way of passing on wealth to your loved ones so think twice before spending all the money,” he said.