A small minority of pension savers risk running out of money in a decade or less, with 4 per cent of individuals entering decumulation drawing 10 per cent or more of their fund.
ABI data for the first quarter of 2016 shows a majority of decumulators – 57 per cent – withdrew 1 per cent or less of their pots.
The ABI says that while some of those drawing more than 10 per cent are taking their entire fund, it cannot identify from the data whether these savers may have multiple pots or other regular income.
Sales of annuities fell to £950m in the quarter, compared to £1.1bn in the previous quarter while drawdown products remain consistent, with £1.48bn invested, compared to £1.49bn in the previous quarter.
The first data for the entire year shows £4.3 billion has been paid out in 300,000 lump sum payments, with an average payment of £14,500.
A further £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, while £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 per cent of savers switched when buying an annuity.
For drawdown, 53 per cent 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.
ABI director of policy, long-term savings and protection Yvonne Braun says: “This is our most detailed analysis of customer decisions to date following the introduction of the pension freedoms. 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.”
Hargreaves Lansdown head of retirement policy Tom McPhail says: “The ABI data backs up evidence from elsewhere, that the vast majority of pension savers are using the new freedoms well and making sustainable long term retirement income decisions. We have seen some fundamental changes in behaviour, with fewer annuities being sold but for higher values and more drawdown plans being used, with lower average values; these are both positive developments. We are also seeing many smaller pension pots being cashed out as a single lump sum, and this too is probably a good thing as it is likely to be more efficient than the old approach of paying out a tiny annuity income.
For most investors, a mix and match retirement income strategy is proving the best solution. A combination of some guaranteed income from the state pension, a final salary scheme or an annuity, combined with some flexible income from drawdown delivers a good mix of security and flexibility.
There is still more work to be done though. The ABI research indicates that a minority of investors may be running down their savings too quickly. The best protections are good engagement and communication between investors and their pension providers, and use of the government’s Pension Wise service, which provides free guidance for retiring investors.
Shopping around at retirement is still a problem too, with too many investors still not using the benefit of market competition to make sure they are getting the best possible deal from their retirement savings.”