Almost half of those accessing a pension are taking 8% or more each year, sparking fears that they could run out of funds. The FCA (Financial Conduct Authority) said a withdrawal rate of 8% or more was the most popular rate between April 2020 and March 2021, with this amount being taken from 161,755 pension pots equating to 45% of regular withdrawals……
The figures cover about 95% of defined contribution pensions and refers to the number of plans accessed, rather than the number of people. Therefore, it could be that savers have multiple sources of retirement income. Furthermore, 18% took between 4 and 6%; 15.5% took between 2 and 4%; 13.7% took between 6 and 8% and 12.4% withdrew less than 2%.
Typically a 4% rate had been considered the norm because it is predicted that your investments will continue to grow enough to cover most of the income you have taken. However, if the growth (minus fees and inflation) does not keep pace with your withdrawal rate, you could deplete your pot sooner than expected.
Article first featured in The Sunday Times, December 2021.