On the go: People using the pension freedoms are taking income at rates varying from 4 per cent to 10 per cent, depending on their pot size and income needs.
This finding is based on research from Royal London’s Drawdown Governance Service tool.
An income withdrawal rate of 4-5 per cent a year has traditionally been seen as sustainable, although some experts believe in a low yield environment this is too high.
Customers with smaller pots (below £25,000) tended to take their income at a higher median rate of 10 per cent while those with larger pots of over £250,000 are taking income at a much lower median rate of 4 per cent.
Commenting on the disparity, Royal London’s head of investment solutions Lorna Blyth, said: “What the data tells us is that following the introduction of pension freedoms there is no such thing as a typical income drawdown customer.”
Patrick Connolly, chartered financial planner at Chase de Vere, agreed.
He said: “It’s difficult to draw meaningful conclusions from looking at individual pension policies. What’s clear is that, in the wider market, too many people are going into drawdown without taking independent financial advice.”
Tom Selby, senior analyst at AJ Bell, explained: “Someone could take a 20 per cent withdrawal from a DC pot which on the face of it may look unsustainable. However, if they also had a £20,000 annual DB pension income this might be a perfectly sensible decision.”
He added: “Our own research suggests investors are broadly using the freedoms in a sensible manner rather than splurging irresponsibly. However, the nature of the pension freedoms reforms means there will inevitably be a mix of outcomes, with some spending too quickly and others being overly cautious.”
Nathan Long, senior analyst at Hargreaves Lansdown stressed the importance of retirees regularly reviewing their drawdown pension.
“It’s also worth periodically checking how much annuity the pension may buy, as rates change as people age and their health changes,” he said.
