Retirees who do not seek advice are more likely to deplete their pension savings

Retirees who did not take independent financial advice about their pensions were more likely to fully deplete their pension pots than those who sought advice about their pensions.

The latest data from the Moneyfacts UK Personal Pension Trends Treasury Report shows that of drawdown customers taking a regular income from their pensions, 19% who have not taken independent financial advice have fully depleted their pension pot, compared to just 6.8% who did take financial advice.

The data also showed that retirees who had sought independent financial advice were more likely to take less than 4% from their retirement savings compared to non-advised retirees, with 33% compared to 28% saying this was the case. At the other end of the spectrum, 31% of advised retirees withdrew 8% or more from their pension pot compared to 28.5% of non-advised drawdown customers.

Drawdown customers' annual withdrawal rates (%)

A drawdown is withdrawals retirees take annually from their pension pot to provide a retirement income. Since the Pension Freedom Act 2015, drawdown has become more popular with pensioners as it allows them to take more control over the money in their pensions and often allows a bulk of the pension to remain invested. Retirees who choose to gain a regular income from withdrawing money annually from their pension pot need to be careful to ensure that their pension fund retains enough money to provide them with an income for their lifetime.

Those nearing retirement or who have already retired should seek independent financial advice to ensure that they make the best decisions about their pensions for their individual circumstances.

Richard Eagling, head of pensions at Moneyfacts, said: “Drawdown has many appealing qualities for those seeking to maximise flexibility in their retirement planning but one of the key trade-offs is that individuals have to take on longevity risk for themselves.

“The fact that those individuals going it alone with their drawdown strategies are almost three times more likely to have depleted their fund compared with those taking professional advice should be a red flag moment.

“Both the Moneyfacts research and the FCA’s data on withdrawal rates raise some potential alarms as to whether the current rate of withdrawals is sustainable, although it must be stressed that it is difficult to make any firm conclusions on the basis that neither data sets are able to show whether a plan holder has other pension plans or sources of income on which to fall back on.”