Minority ‘withdrawing too much too soon from pension pots’

The Association of British Insurers (ABI) said that while the vast majority of savers appear to be t

The Association of British Insurers (ABI) said that while the vast majority of savers appear to be taking a "sensible approach", a small minority may be withdrawing cash at a rate that sees their money run out in a decade or less. Picture: Gareth Fuller/PA Wire - Credit: PA

Most people have been 'sensible' and not blown their pension pots in the year since they were given new freedoms, according to new figures.

The way savers could draw their pensions changed a year ago and despite MPs' fears it would lead to savers splashing out wastefully, it appears only a small minority have withdrawn a significant portion.

Data released by the Association of British Insurers (ABI) shows most over-55s have used the new freedoms in moderation, with less than 4% withdrawing cash at a rate that would see their money run out in a decade or less.

Launched in April 2015, the pension freedoms give the over-55s more choice in how they use their retirement money.

They were previously required to use their pot to buy a fixed income called an annuity, however now it is possible to withdraw part or the entirety of a pot with 25% tax free.

Andrew Morley, financial planning consultant at Lovewell Blake, said: 'People weren't overly clear what the tax implications were but once it has been explained to them they tend to have taken a sensible approach.

'I think the flexibility has worked for people where it has taken away the limits of what they can draw out.

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'We have found in a few cases with individuals who are wanting to retire early, they are able to bridge that gap between ending work and when their state pension starts.'

Yvonne Braun, the ABI's director of policy, long-term savings and protection, said: 'New data released shows that more than half of pots are having less than 1% withdrawn a quarter, which seems to indicate most people are taking a sensible approach.

'However, the data also suggests a minority are withdrawing too much too soon from their pension pot - 4% of pots are having a tenth or more withdrawn - and many other customers are taking their entire pot in one go.'

She added there could be other factors at play with multiple pension pots or secondary incomes available.

Saving habits may change and Alistair McQueen, savings and retirement manager at Aviva, said he thought buying annuities could become less common.

He said: 'Younger people will have to be more engaged in their savings.

'Traditionally people's pensions have been dealt with by their employer but that is changing to a degree.

'In 10 to 15 years' time there will be a generation of people retiring who will be much more used to managing their savings and I would expect them to be more willing to use their savings.'

What do you think of the reforms? Email doug.faulkner@archant.co.uk