Some people using the new pension freedoms may be plundering too much from their retirement pots too soon, insurers have warned.
The Association of British Insurers (ABI) said that while the vast majority of savers appear to be taking a “sensible approach”, a small minority may be withdrawing cash at a rate that sees their money run out in a decade or less.
Launched in April 2015, the pension freedoms give the over-55s a much wider choice over how they use their retirement money. Previously, they may have been required to use their pot to buy a fixed income called an annuity.
The ABI has released data showing how people have been taking up the reforms so far. The latest figures show that between January and March, 79,734 pots of varying sizes had some money withdrawn from them.
More than half (57 per cent) of pots where money was withdrawn involved less than 1 per cent of the total value of the pot being taken out. Some 45,641 pots had less than 1 per cent withdrawn from them in this way.
But 4 per cent of pots where withdrawals were made, amounting to 3,379, had 10 per cent or more of their value taken out.
Generally, the first 25 per cent of a pot is tax-free and the remainder is subject to tax.
The ABI said: “There are signs a minority may be withdrawing too much too soon and at rates that would see their money run out in a decade or less, if they are reliant on their pension pot as their main source of income.”
But it said it cannot tell from the data whether savers taking out big chunks from their pots have other sources of income to keep their finances ticking over, for example money from investments or other pensions.
Yvonne Braun, the ABI’s director of policy, long-term savings and protection, said: “New data released shows that more than half of pots are having less than 1 per cent withdrawn a quarter, which seems to indicate most people are taking a sensible approach.
“However, the data also suggests a minority are withdrawing too much too soon from their pension pot - 4 per cent of pots are having a tenth or more withdrawn - and many other customers are taking their entire pot in one go. There may well be other factors at play here, such as people having other retirement income, for instance, final salary pensions or multiple pots. But this is a warning sign that requires further investigation.”
The quarterly figures also show annuity sales have fallen, with £950 million invested, compared with £1.1 billion the previous quarter.
Annuity rates have seen some sharp falls recently amid the economic uncertainty surrounding the EU referendum.
Experts have warned that the recent cut in the Bank of England base rate to 0.25 per cent will be a further blow to pensions.