Britons are warned they could run out of money once they turn 82 if they are not careful with their pension withdrawals.
The warning comes from the Retirement Income Market data from the City watchdog, the Financial Conduct Authority (FCA) which showed that well over 220,000 pension pots had a withdrawal rate of more than eight per cent in 2023/24.
This surge in high withdrawal rates has raised alarms among financial experts as pension drawdown continues to be the most popular option.
Almost 280,000 savers chose this method in 2023/24, marking a 28 per cent increase from the previous year.
Overall, pension withdrawals surged by 20 per cent in the same period, with savers cashing out more than £52bn.
These figures highlight a growing risk of retirees depleting their pension funds prematurely, potentially leaving them without financial security in later years.
Pension withdrawals surged by 20 per cent in the same period, with savers cashing out more than £52bn
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Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, told The Sun: “Managing an income drawdown pot throughout retirement can be challenging.”
“We don’t know how long we are going to live and with recent data showing there are over one million people over the age of 90 and almost 15,000 centenarians in England and Wales the reality is it’s likely to be a multi-decade endeavour.”
Morrissey cautioned: “If you are plundering your pot long-term then you face the very real threat of running out of money.”
Calculations by Hargreaves Lansdown show that withdrawing eight per cent annually from a typical pension pot could leave retirees without cash by age 82.
Based on a 65 year olds £100,000 drawdown pot with five per cent investment growth before fees, she found:
- A one per cent annual withdrawal (£83.33) would leave £315,000 at age 100.
- A three per cent withdrawal (£250) would result in £166,000 at age 100.
- At six per cent (£500 annually), funds would be depleted by age 92.
- At seven per cent (£583.33 a year), funds would have disappeared by 86.
- An eight per cent withdrawal rate would exhaust the pension pot by age 82.
With over a million people aged 90+ in England and Wales, an eight per cent withdrawal rate could leave many facing financial hardship in their later years.
To ensure long-term financial security, Morrissey suggests a “natural yield approach”, where income is determined by investment performance. This method preserves capital for potential future needs, such as care costs.
She said: “It’s also really important that you invest in line with your risk appetite. The finannce expert recommeds keeping one to three years of essential expenses in an easy-access account as a buffer.
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Another option is a mix-and-match approach, combining SIPP drawdown with annuities. Annuities provide a fixed regular income for life, offering stability alongside the flexibility of drawdown.
As life expectancy increases, careful pension management becomes increasingly crucial for retirees’ financial well-being.
