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Retirees in drawdown ‘withdrawing too much from their pension’

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Retirees who take an income from their pension risk running out funds due to “alarmingly” high withdrawal rates.

Since pension freedom rules were introduced in 2015, savers over 55 have effectively been able to do whatever they want with their pension money and no longer have use it to buy an annuity.

But data suggests some people are withdrawing money from their pots at unsustainable rates.

Research by Moneyfacts found that 70 per cent of savers who take a regular income from their pension withdrew 4 per cent or more of the value of their fund each year, while almost 30 per cent took an income of 8 per cent or more, and around 13 per cent have fully depleted their fund.

The findings also reveal people who do not take advice are more likely to run out of funds than those who take professional advice.

Almost three times more non-advised drawdown customers have fully depleted their funds than advised customers, according to Moneyfacts.

In addition, more advised drawdown customers are taking less than 4 per cent out of their pension a year compared with non-advised customers.

The figures follow data from the Financial Conduct Authority (FCA) published in September, which found that 40 per cent of drawdown customers made regular withdrawals at an annual rate of 8 per cent or more of the fund value, up from a 34 per cent the year before.

Richard Eagling, head of pensions at Moneyfacts, said: “Data on withdrawal rates raise some potential alarms as to whether the current rate of withdrawal is sustainable, although it must be stressed that it is difficult to make any firm conclusions on the basis that neither data sets are able to show whether a plan holder has other pension plans or other sources of income on which to fall back on.”

Lorna Blyth, head of investment solutions at Royal London, said: “It’s worth remembering that markets have been positive ever since pension freedoms and this is unlikely to continue over the next five years. Our view is that navigating income withdrawals through volatile markets increases the value of advice across the board, including for those with more modest pots. We will always direct customers to their advisers, or help them find one to support them through this process.”

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