Before 2015, retirees had to buy an annuity, guaranteeing income for life. This changed with ‘pensions freedom’ which allowed people to access their pension pot from age 55. The idea was welcomed at the time, but many now face challenges managing their pension.
Pension pots are often too small to last 25 years or longer, especially with rising living costs. Unexpected expenses, like home repairs or car bills, can quickly drain savings.
The situation has worsened with the cost-of-living crisis. New data from the Financial Conduct Authority (FCA)1 shows a significant increase in pension access and withdrawals, with the total number of pension plans accessed for the first time in 2023/24 surging by 19.7%, to 885,455 compared to 739,652 in 2022/23. Jon Greer, Head of Retirement policy at Quilter commented on the data, “This substantial increase indicates that more individuals are turning to their pensions to manage their financial needs, likely influenced by the cost-of-living crisis forcing people to dip into their pension pots to supplement other forms of income.”
It can be difficult for retirees to estimate how long they’ll live and many overspend because daily expenses like food and housing are higher than expected. As a result, more people are at risk of running out of money in retirement. In fact FCA data shows the most common rate of withdrawal was 8% a year or more, which is double the recommended 4% rate.
Don’t act in haste
If you need any help with your pension arrangements, please get in touch, we can help you manage a sustainable withdrawal strategy in retirement.
1FCA, 2024
It is important to take professional advice before making any decision relating to your personal finances. Information within this article is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK.