A new report published by the Association of British Insurers (ABI) suggests that while most British savers are handling their finances sensibly, the same can’t be said for others. Figures release by the ABI show that a small yet troubling minority of savers are making the inadvisable decision to deplete theirsavings dangerously early.
The ABI spoke of the newfreedoms introduced last April spurring far too many savers to make poor decisions, accessing and blowing their own savings quicker than experts would advise.
During the opening quarter of the year, withdrawals of 1% or less were made from around 575 of UK pension pots, according to the figures. In addition, the report revealed that withdrawals of 10% or more were made from around 4% of pension pots.
Speaking on behalf of the group, the ABI’s director of long term savings and protection, Yvonne Braun insisted that the figures illustrate the positive effects of the new pension freedoms and that most were making use of them in a ‘sensible’ manner.
‘New data released shows that more than half of pots are having less than 1% withdrawn a quarter, which seems to indicate most people are taking a sensible approach,’ she said.
‘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suggests a minority are withdrawing too much too soon from their pension pot – 4% of pots are having a tenth or more withdrawn – and many other customers are taking their entire pot in one go,’
‘There may well be other factors at play here, such as people having other retirement income, for instance, final salaryor multiple pots. But this is a warning sign that requires further investigation.’
During the first full year since the new reforms were put into place, the figures from the ABI show that drawdown plan sales had spiked to a lofty £6.1 billion. Drawdown give savers the opportunity to manage and control their pots during their retirement. By contrast, conventional annuity sales during the same period reached a total of £4.2 billion. Annuities differ from drawdowns in that they provide pensioners with a guaranteed annual income for life, though once set up cannot be altered.
Before the new pension freedoms were introduced, drawdown sales were outpaced by conventional annuity sales.
Since April 2015, the number of drawdown products purchased in the UK came in at 90,700 with a fund size average of £67,500. During the same time, total annuity sales came in at around 80,000 with an average value of just over £52,000.
On the whole, 300,000 lump sum payments have been made with a total value of around £4.3 billion since the introduction of the reforms, the ABI reports. According to the ABI’s figures, payments averaged out at £14,500. In addition, total drawdown pay-outs over the same 12-month period totalled £3.9 billion – an average payout of £3,800.