Pension: Withdrawal behaviour top fear

A new report from the Association of British Insurers (ABI), ‘Future Proofing the Freedoms: Supporting customer decisions about pension withdrawals’ has found pension industry experts fearing that many people are withdrawing from their pension without any advice or guidance, meaning that in future many could run out of money in retirement.

A change in the regulatory rules for advice and guidance is needed so the majority and not the minority get access to support for pension withdrawals. For DC pensions savers, deciding how much to withdraw from their pension can be confusing as it requires an understanding of the impact of inflation, how the tax system will affect you and how long you may need your money to last. Providers are currently limited in how much support they can offer without giving a personal recommendation, and therefore giving financial advice.

Changing this would enable providers to help pension savers with withdrawals by telling them about the implications of taking a lump sum; talking a customer through what a sustainable income could look like and prompting a customer that people in their situation often secure a guaranteed income at a particular age.

The report also found that many current retirees are making full use of pension freedoms. There are valid concerns about unsustainable withdrawals but right now they are mitigated by most retirees having other sources of income, particularly guaranteed income from defined benefit pensions. Future retirees will be much less likely to have other income to rely on and many will be relying solely on a DC pension.
Previous ABI data has found many people pressed pause on withdrawing from their pension in the first year of the pandemic. As restrictions ease and the vaccine roll out continues, an increasing number of customers are expectedto start to access their pension savings so changes to regulation are urgently needed.