New research following last year’s launch of pension freedoms has shown that many British workers reaching retirement are far more cautious than previously predicted.
When the scheme was launched in April 2015, the then Pensions Minister Steve Webb joked that pensioners could use their pot to buy whatever they liked, including a Lamborghini – leading to fears that retirees may waste their hard-earned pension savings on frivolous things.
However, a year on from the launch of the freedoms a study from the Association of British Insurers (ABI) has shown that only 60 per cent of pensioners are withdrawing money from their pension pots at a rate of around four per cent a year.
During the last year around £4.3 billion was withdrawn from pension pots, with the majority of people taking advantage of the 25 per cent tax-free cash lump. It is estimated that the average cash payment was around £14,500.
The pension freedoms have seen a crash in the sales of annuities, falling from a peak of £12 billion before the new freedoms to £4.2 billion in the year to the end of April 2016.
As a result of the Brexit vote, falling interest rates and lower gilt yields are expected to cut potential returns and the sales of annuities are expected to fall further in 2016-17.
Meanwhile, more flexible drawdown sales have increased to £6.1 billion in the year to April 2016, with the average saver putting £67,500 in to their scheme.
“The data shows that the freedoms have been implemented successfully, and are working as intended. More than half of pots are having less than one per cent withdrawn a quarter, which seems to indicate that most people are taking a sensible approach,” said the ABI’s director, Yvonne Braun.
LINK: ABI Report