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What are people doing with their pensions? – the latest trends on annuities and drawdown

From buying annuities, to income drawdown and retirement advice, we take a closer look at what retirees are doing with their pensions.
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Important information - 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.

The Financial Conduct Authority (FCA) recently released data on how people are accessing their pensions.

From annuities to income drawdown, here’s a closer look at what people have been doing with their retirement pots.

Are people buying annuities?

In a period that covered annuity incomes soaring to highs not seen in over a decade, retirees initially wavered in their decision making as annuity sales actually dropped in 2022/23, compared to the year before.

With a string of interest rate rises, this was perhaps a sign of retirees waiting to see if rates could go even higher.

Some retirees got more generous quotes than others given rates depend on pension value, personal circumstances and options chosen.

However, a year later, annuities reached a new record. Total sales soared to £5.2bn – a 46% increase on 2022, and the highest annual value since pension freedoms came into effect in 2014.

With annuity rates still fairly high, we can probably expect to see a real uplift in sales in next year’s stats.

This article isn’t personal advice. Pension rules can change, and any benefit depends on individual circumstances. Remember, you can’t usually take money out of a pension until at least age 55 (rising to 57 from 2028).

Digging further into the data, several trends emerge showing people are making full use of the flexibilities available to them. Over 420,000 pensions were withdrawn fully at first time of access during the period.

This is primarily among smaller pots. But with over 3,400 pots worth over £100,000 also being withdrawn in full, there could be many retirees getting to grips with some nasty tax bills.

Income drawdown remains a popular choice among retirees with 218,000 pension pots entering drawdown – this compares to just over 59,000 annuities.

However, it looks like withdrawal rates remain on the higher side – around 40% had withdrawal rates of over 8% in the year. This is far higher than historical rules of thumb which lie somewhere closer to 4%.

Larger withdrawals can be fine for one off events like paying for a wedding or home renovations. However, if it carries on over the long term, it could leave people at risk of running out of money

In the past, income drawdown was seen as a higher-net-worth solution that people did under the watch of a financial adviser.

Retirees still got advice in well over half of all drawdown cases, and others got guidance from Pension Wise, but worryingly over a third of cases got no advice or guidance at all.

This could well be a factor behind the high withdrawal rates we’re seeing from drawdown plans, and we could see many regretting these choices later down the line.

Retirement involves major decision making, the consequences of which will be felt for many years. Before deciding what to do with your pension, check you understand all your options and their risks. It’s important you feel comfortable getting the support you need to make the best decision possible.

The government’s free and impartial Pension Wise service is a good place to start to help you understand your retirement options.

Not sure what to do? – get financial advice

Whether you want to make the most of your personal allowances, talk through your retirement planning, or shelter your income from tax, we’re here to help.

Our financial advisers are experts in their field, ready to help your money work harder.

The first step is to book a call back from our advisory helpdesk. They won’t give you advice on the call, but they can talk you through how advice works, and the charges involved. That way you can get a better idea of whether it’s right for you.

Then if you want to take advice, they can put you in touch with an adviser.

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Written by
Helen Morrissey
Head of Retirement Analysis

Helen raises awareness of key retirement issues to help people build their resilience as they move towards their later life.

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Article history
Published: 8th May 2024