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Retirees opt for increasingly stable income withdrawals

We take a look at how retirees have adjusted to the flexible pension rules. Plus, we offer a sustainable strategy for taking an income.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

When pension freedoms were first announced the headlines were full of fears that retirees would blow their life savings. But HMRC figures suggest the headlines were wrong. Many retirees are actually choosing increasingly stable income withdrawals.

The average amount that retirees are taking from their pension has been falling steadily and consistently. Compared to this time last year, the average amount withdrawn per person has decreased by 5% from £7,600 to £7,250, for the period between July and September.

We think this shows people are sensibly managing their money into retirement. They’re drawing less from their pensions and doing so more regularly. Regular withdrawals are the norm. In the three months from July, the number of withdrawals per member averaged 2.38, which suggests more people are making monthly withdrawals than those requesting one-off payments.

A three year view

Over the past three years, we’ve been tracking the average payments per member, based on data published by HMRC. There’s no surprise that during the first year of flexible pension rules, retirees were taking out larger amounts.

People also tend to draw out more at the start of the new tax year (which falls in the second quarter - Q2 as shown below), but there’s an ongoing trend for drawing out less.

Flexible pension withdrawal sizes

Source: HMRC to 30/09/19

Although the new pension rules came along in a hurry, people appear to have adjusted and for the most part it’s working well.

A sensible income strategy

If you’re planning to keep your pension invested, and take an income through drawdown, it’s important to think about how long you’ll need your pension to last. If you don’t, you’re at risk of drawing out too much too soon.

If you just take any income that your investments produce, you’re less likely to run out of money. This is also known as taking the natural yield. The main benefit of using this strategy is that it improves the chances of a growing pension over time, which will continue to provide an income. This is vital if you want your income to last for the long-run.

This strategy doesn’t come without risks. The income that your investments produce isn’t guaranteed, it could go up as well as down, and you could give yourself less money to live off compared with other options.

A diversified portfolio can reduce the impact of one investment’s income falling. This means spreading money across different types of investments. You can diversify by asset – like shares, bonds, funds, cash and property – and by investing across the globe.

Our guide explains how you can pick investments based on an income strategy and goals. Plus, we offer investment ideas and other strategies for taking an income.

Download guide

Find out more about drawdown

What help is available?

If you have any questions our helpdesk are always happy to help and are available six days a week on 0117 980 9926. Monday-Thursday 8am-7pm, Friday 8am-6pm and Saturday 9:30am-12:30pm.

What you do with your pension is an important decision. We strongly recommend you understand all your options and check that the option you choose is right for your circumstances. Take advice or seek guidance if you’re unsure.

The government provides a free and impartial service to help you understand your retirement options - more on Pension Wise.

This article isn’t personal advice. We offer a range of information and support to help you plan your own finances. We also have an award-winning advisory service that can help you achieve your goals.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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