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ABI publishes full year of pension freedom data

ABI Press team | 15/08/2016

Majority take sensible approach, but signs some withdrawing too much too soon

The Association of British Insurers has today published statistics for the first complete year since the Freedom and Choice reforms, from April 2015 to April 2016. The ABI is also publishing new data which shows the percentages withdrawn from pension pots and from what age groups.

This new data indicates the majority of savers are taking a sensible approach, with 57% pots with 1% or less withdrawn during the last quarter. However, there are signs a minority may be withdrawing too much too soon and at rates that would see their money run out in a decade or less, if they are reliant on their pension pot as their main source of income. Indeed, in the last quarter, four per cent of pots had 10% or more withdrawn, and many others are taking their whole pot in one go. However we cannot identify from the data whether these savers may have multiple pots or other regular income.

In the most recent quarter, sales for guaranteed income for life (annuity) products have fallen, with £950m invested, compared to £1.1bn last quarter. Sales of flexible retirement income (drawdown) products remain consistent, with £1.48bn invested, compared to £1.49bn the previous quarter.

Rate of withdrawal for drawdown and lump sums in Q1 2016

Withdrawal rates Total number of pots where withdrawals taken 
Less than 1% withdrawal 45,641
1-1.99% withdrawal 16,134
2-3.99% withdrawal 10,500
4-5.99% withdrawal 1,822
6-7.99% withdrawal 1,423
8-9.99% withdrawal 835
Equal or greater than 10% withdrawal 3,379
Total plan holders making partial withdrawals 79,734

Overall, in a complete year since the reforms, the figures show for pay-outs:

  • £4.3 billion has been paid out in 300,000 lump sum payments, with an average payment of £14,500.
  • £3.9 billion has been paid out via 1.03 million drawdown payments, with an average payment of £3,800.

Since the reforms came in, for funds invested in new products:

  • £4.2 billion has been invested in 80,000 annuities, with an average fund of £52,500.
  • £6.1 billion has been invested in 90,700 drawdown products, making the average fund invested nearly £67,500.

Over the last year since the reforms were introduced, 41.5% savers switched when buying an annuity. Other savers may have looked at different providers and chose to stay with their existing provider who could have offered favourable rates, and new data shows around half of internal annuity sales, i.e where a customer did not switch, had a guaranteed annuity rate attached.

For drawdown, 53% chose to go with a different provider at the time they took money from their pension. Others will have transferred their pension before going into drawdown.

A detailed breakdown of these statistics is provided in the ABI pension factsheet.

Yvonne Braun, the ABI’s Director of Policy, Long Term Savings and Protection, said:

"This is our most detailed analysis of customer decisions to date following the introduction of the pension freedoms. The data shows that the freedoms have been implemented successfully, and are working as intended. New data released shows that more than half of pots are having less than 1% withdrawn a quarter, which seems to indicate most people are taking a sensible approach. 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 - and many other customers are taking their entire pot in one go.

"There may well be other factors at play here, such as people having other retirement income, for instance, final salary pensions or multiple pots. But this is a warning sign that requires further investigation. We need a full picture of these customers’ circumstances and income, which is something we urge regulators and the Government to work with all stakeholders to examine.

"The fall in annuity sales in the most recent quarter reflects ongoing pressure on rates, which will not have been helped by the recent decision to lower interest rates to a 300 year low, and further quantitative easing measures."

Further data trends and analysis are available in the ABI pension factsheet.


Notes for Editors

1. The ABI has recently changed its data collection template to be the same as the FCA’s. Some data from previous quarters has been restated.

2. The ‘rate of withdrawal’ table is for regular withdrawals - where there is a regular payment set up and agreed with customer, and the whole pot is not taken.

3. What is the difference between drawdown and lump sums?

Drawdown: You can leave your money in your pension pot and take a flexible retirement income from it. Any money left in your pension pot remains invested, which may give your pension pot a chance to grow, but it could go down in value too. A quarter of your pension pot can be taken tax-free and any other withdrawals will be taxed.

Lump sums: You can leave your money in your pension pot and take lump sums from it as and when you need, until your money runs out or you choose another option. You can decide when and how much to take out. Any money left in your pension pot remains invested, which may give your pension pot a chance to grow, but it could go down in value too. Each time you take a lump sum, a quarter of it is tax-free and the rest will be taxed.

You can take your whole pension pot in one go as a single lump sum. A quarter of your pension pot can be taken tax-free – the rest will be taxed.

Last updated 18/11/2016