More pensions are being fully withdrawn and those savers who are using them for income are taking an increasing amount, according to the Financial Conduct Authority’s (FCA) latest Retirement Income Market data bulletin.

The FCA’s retirement income market data showed that 9 out of 10 of these were pots less than £30,000 with 88% of newly accessed pots with a value of less than £10,000 being fully withdrawn.

Just Group communications director, Stephen Lowe, commented: “These are not people whose funds are so big they don’t need to worry. In fact, the larger the fund, the more cautious the withdrawal rate. More than half (51%) of those with £30,000-£100,000 pension funds are taking more than 8% compared to 28% of those with funds valued at more than £100,000.”


Lowe added: “[These] figures show more pension funds are being accessed, a higher proportion are being fully encashed and those who are taking income are taking higher amounts. Of those pots going into the relative complexity of drawdown, 27% were moved without advice or guidance which is higher than the 25% previously.

“We are more than five years into the pension ‘freedom and choice’ experiment and while giving people aged 55 and over easy access to cash is undoubtedly popular, that doesn’t mean they are going to have more financially secure retirements.”

The consequences of “emptying” pension pots is slightly worrying not only does it disrupt long-term retirement planning, but retirees could potentially run out of money in their retirement (by living longer), not have not enough money for social needs and finally there are long-term tax implications.

not only suffer a significant income tax charge, they also lose the protection from tax on any future growth and inheritance tax should they die.

Sean McCann, chartered financial planner (CFP) at NFU Mutual, said: “Those cashing in their pension funds in full may not only suffer a significant income tax charge, they also lose the protection from tax on any future growth and inheritance tax should they die.

“Some cash in their pension funds without a clear idea of what they plan to do with the money, often putting it into a bank account. If investors are concerned about market volatility, talking to their pension provider about lower risk funds may help them avoid an unnecessary tax bill.

“Although it sounds counter intuitive, for those that can afford to, pensions should be the last investment they access in retirement, because of the protection they offer from inheritance tax.”

Compound effect

Chris Ball, managing partner, Hoxton Capital Management says: “Making large withdrawals has a big impact on the compound effect going forward. When starting to suddenly take large sums of cash from a pension early, it has a significant impact on the overall growth (those taking it the full amount out, will no longer see any growth).

“Another significant effect that this has, is that if this is taken out whilst the individual is still earning an income, they will automatically be taxed at a higher rate. The ramifications of the flexi-access drawdown options that were introduced, is that it desensitises retirees from seeing it as a pension (long-term, growing) and they now perceive it as a regular savings pot that they have easy access to.”

Further reading

The small nudges that could make young people £142,000 better off in retirement

Tailoring your investment approach for sustainable income drawdown

Pensions and the ever changing landscape