The key points:
|Withdrawal rates||Total number of pots where|
|% of total population|
|Less than 1% withdrawal||45,641||57.2%|
|10% withdrawal or more||3,379||4.2%|
|Total plan holders
making partial withdrawals
The ABI is quoted as saying “The data shows that the freedoms have been implemented successfully, and are working as intended ... However, the data also suggests a minority are withdrawing too much too soon from their pension pot - 4% of pots are having a tenth or more withdrawn…”. Despite agreeing that there may be other factors influencing the decision to take higher income they also call on regulators and the Government to carry out further investigations.
A comparison with Royal London Intermediary figures shows one significant difference to those for the overall market. When calculated on the same basis1, the average percentage withdrawal from RLI plans was 2.62%, whereas that for the ABI was 5.63%.
Now it may be that Royal London customers are just super-sensible, but I am inclined to think that the major difference between these two groups is that 100% of RLI customers are intermediary-introduced, whereas the FCA reported in September that only 58% of all new drawdown investors were doing so2.
Royal London firmly believes that anyone taking income from a drawdown policy should speak to an adviser who is in a position to identify what level of withdrawal is likely to be sustainable over the long term. Regular supporters will be aware of the Income Planning Tool and Drawdown Governance Service (DGS) we provide to assist.
Both the ABI and Royal London found that the level of withdrawal fell over the 12 month period under review, however we can confirm that Q2 2016 figures from both Royal London and the ONS3 show an increase in the next quarter. Partly this is due to a change in the ONS database, but it is also likely that a spike may occur at the beginning of each tax year, perhaps indicating that the tax treatment of pension income is a limiting factor on income withdrawals.
Both sets of figures also show that the average withdrawal figure is skewed by a small number of very large withdrawals. Readers of June’s newsletter will have seen that around 54% of RLI plans included in our DGS have less than a 1 in 5 chance of sustaining their current level of withdrawals, and that the average for these plans was 11%. It is entirely possible that plans are only part of the individual’s overall assets and it must also be remembered that that DGS only includes plans where income is actually being taken (see footnote 1).
Overall, it seems that “Mostly Sensible” is a fair assessment at this stage.
1These figures are based on plans set up from April 2015 to April 2016 only and include plans where no income is being taken at all.
2Retirement Income Market Data July – September 2015
3ABI figures for Q2 2016 are not yet available
Fiona joined the life and pensions industry in 1989. She is a Fellow of the Personal Finance Society, an Associate of the Chartered Insurance Institute and is currently Vice-President of The Insurance Society of Edinburgh. Fiona specialises in the areas of at retirement planning and pensions and divorce.