Interactive Investor

Rise in retirees cashing in entire pension pots

1st October 2020 12:38

Laura Miller from interactive investor


Share on

Regulator finds a worrying rise in pensioners with small pots taking out unsustainable amounts of cash.

More pensioners are fully withdrawing their retirement savings, research shows, and those using it for income are taking increasingly large amounts.

The Financial Conduct Authority’s Retirement Income Market survey also shows pensioners are not using safe withdrawal rates and risk running out of cash.

There has been a 5.1% rise in the number of pensions being fully withdrawn over the last 12 months.

Of the 673,000 pensions accessed in 2019-20, more than half (56%) were fully withdrawn.

Most – nine out of 10 – of these were pots worth less than £30,000, and it is often assumed that pensioners cashing in small pots have other forms of income on which to rely.

Experts suggest it is evidence of pension savings being diverted to fund projects other than retirement living.

Of those who are using their pension funds for income, 42% were taking more than 8% a year from the fund. This is an increase on the 40% recorded in the previous period. 

Most experts agree taking more than 8% a year in withdrawals is likely to end up exhausting the fund early.

Pensioners with smaller pots, who need to exercise more caution, were found to be more likely to be taking unsustainable levels of income.

More than half (51%) of those with £30,000 to £100,000 in pension funds are taking more than 8%, compared to 28% of those with funds valued at more than £100,000.

Of those pots going into drawdown to provide an income, 27% were moved without advice or guidance, up from a quarter a year ago. 

Andrew Tully, technical director at insurer Canada Life, says: “Five years from the introduction of pension freedoms, we continue to see a drift away from financial advice as people choose to DIY drawdown, while others strip their pensions at what most professionals would argue is an unsustainable rate of income. 

“This may be OK if it is a deliberate strategy to deplete pension pots early, or over a set period, but my concern is that we could be storing up trouble for the future if this data continues to tell a similar story in the years to come.”

Separate data published by HM Revenue & Customs earlier this year suggests people reduced or paused withdrawals as markets crashed in March and April, a sign of sensible caution in the face of falling investments.

The total number of defined benefit (DB) transfers dropped 28% to 40,600 in 2019-20 amid a crackdown by the FCA, the regulator’s data showed.

It is concerned that too many DB transfers are against the best interest of savers, and risk them ending up in unsuitable, risky investments, and running out of money in retirement.


These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Get more news and expert articles direct to your inbox

Sign up for a free research account to get the latest news and discussion, and create your own virtual portfolio.

Free Sign Up