Drawdown Pensions and Financial Advice

An increasing number of people are taking out drawdown pensions without seeking financial guidance.

According to the Financial Conduct Authority (FCA) in their retirement outcomes review, around 30% of those paying into a pension go into drawdown without consulting professional financial advisers beforehand. Before pension freedoms were introduced however, this figure was just 5%.

What Are Drawdown Pensions?

With drawdown pensions, contributors are allowed to withdraw as much money as they like, whenever they like. This type of pension is different to an annuity; a type of pension which provides the saver with a fixed income for life during retirement. The FCA’s report stated that twice as many customers are using drawdown pensions rather than annuities, and those access drawdown policies before the age of 65 tend to stay with their provider, as opposed to looking around providers for a better deal.

Financial Experts Worry

Many financial experts are worried about the rate at which people are withdrawing money from their pension funds, and the Association of British Insurers (ABI) have said that 100,000 people withdraw money from their pension pots every 3 months. They also point out, however, that 4.7 million people over the age of 55 leave their pensions untouched. The FCA’s retirement outcomes review also stated that 52% of fully withdrawn pots had been reinvested or saved into new accounts, rather than being spent. Just a quarter of those withdrawing cash spent some, or all of it.

Planning For Retirement

As shown on the BBC website, here is a breakdown of what those people who withdrew all the cash from their pension pots since 2015 have done with their money:

  • 32% put the money into Isa accounts or other savings plans
  • 25% spent some or all the cash - for example, on home improvements or a car
  • 20% invested the money elsewhere - in property, shares or other businesses
  • 14% used the money to pay off debts
  • 9% unknown

There are still a large amount of people who are running the risk of using all of their pension pot, leaving themselves very little to live on later in retirement. If you would like advice on how best to utilise your pension, please take a look at the pension and retirement services we offer. You can also get in touch with us here.