Figures from the joint FCA and the Pensions Regulator paper Regulating the pensions and retirement income sector : Our strategic approach show that on average, people using drawdown are taking an annual income of 5.2 per cent from a drawdown market now worth £101bn, from funds averaging £148,750.
An analysis of the figures by Aegon shows a typical saver in the first wave of those using pension freedoms will have seen their pension fund grow by £8,750, even after having taken £23,220 income. The figures are based on returns from an average drawdown pot invested since the inception of pension freedoms, with an annual charge of 0.75 per cent, invested in a typical portfolio recommended by IFAs.
The regulators’ figures show just 12 per cent of pension pots are now being used to buy an annuity.
Latest figures from HMRC show that freedom and flexibility has led to the levying of an additional £5.1bn in tax.
Almost 700,000 retirees have opted for drawdown since the freedoms were introduced, but over 200,000 retirees haven’t taken advice, a significant rise since the new rules were introduced in 2015
| Fund at commencement | Income of 5.2% per month | Total income over 3 years | Fund after 3 years | Investment gain (after withdrawals) |
| £148,750 | £645 | £23,220 | £157,500 | £8,750 |
Aegon pensions director Steven Cameron says: “The pension freedoms have been extremely popular with nearly 700,000 people taking flexible payments. Looking at typical investment returns over the last three years, people taking the average income of 5.2 per cent, look to have done well and may find even after taking a substantial income, they have more in their pot than when they started.
“However, retirement can last 20 or even 30 years and prospects in drawdown change depending on how much income is taken as well as on investment returns which can change dramatically year on year. Overall, the last three years have been good for investments but they may not be as good in the coming years. As we welcome the third anniversary of the pension freedoms, we recommend anyone who is not already taking professional advice considers doing so.
“Before the pension freedoms, the Government set limits and required your pension provider to review your policy every three years, and to reduce your income if it looked like you were running down your fund too quickly. In the new world, unless you have an adviser, there’s no-one checking your income. Managing your retirement finances is hugely important, be it where to invest, avoiding paying unnecessary tax or reviewing how much income to take to avoid running out of money. In the same way a new car requires an MOT after three years, we’re suggesting that retirees book in for a financial health check three years after retirement, as a DIY approach could lead to a financial break down.”
