5 Years Since the Introduction of Pensions Freedom – Why Is Advice Needed More Than Ever?

For many, your pension is likely to be one of the largest financial assets you own.  Years of hard work and savings will hopefully have grown into a decent pot of money that you can enjoy in your post-working years.

However, if we’re lucky, retirement might span 20 or, dare I say, 30 years or more.  How do we make sure that the money is going to last us?  Worryingly, FCA research suggests that many people don’t actually check.  Some may cross their fingers and hope for the best, others may not be concerned about their money running out.  Regardless of the context of people’s decisions, the problem of over-spending retirement provision is real.

Let me explain the facts behind the issue:

The Financial Conduct Authority (FCA) has been collecting data on the retirement income market since 2015 – this coincides with the introduction of Pensions Freedom.  Pensions Freedom introduced greater flexibility, freedom and choice on how people access their pensions. 

The key findings of the FCA retirement income data published in September 2019 are:

Just over 645,000 pension plans were accessed to buy an annuity, move into drawdown or take a first cash withdrawal in 2018/19.

4 in 10 of all the pension pots accessed had a value of less than £10,000.

Over 350,000 pension pots were fully withdrawn at the first time of access; 90% of which were less than £30,000 in value.

48% of plans were accessed without regulated advice or guidance being taken by the plan holder. 37% of plans were accessed by plan holders who took regulated advice and 15% by plan holders who did not take advice but received Pension Wise guidance. 

40% of regular withdrawals were withdrawn at an annual rate of 8% or more of the pot value.

Source: FCA Retirement income market data 2018/19

Based on the data reviewed, the FCA identified withdrawal rates of 8% and over was the most common withdrawal rate across all pot sizes, the exception being pots over £250,000 where the most common withdrawal rate fell to between 2-3.99%.  The FCA confirmed that 44% of withdrawals for the 55 to 64 age group were at a rate of 8% and over, which is fine if you can guarantee your pension is going to grow consistently at a sufficiently high level for the rest of your life or you have other savings or investments which can be utilised. 

So why is advice needed more than ever when looking to plan a sustainable level of withdrawal in retirement, be it for yourself or your clients?  The Office for National Statistics (ONS) has a really useful calculator ‘What is my life expectancy and how might it change’. The calculator is simple to use, all you need to do is enter your age and sex, then press calculate.  It will calculate your life expectancy and also the chance that you may live longer. For example, for a male aged 65, the average life expectancy is 85 years, with a 1 in 4 chance of reaching 92 years and a 1 in 10 chance of reaching 96 years.  For a female aged 65, the average life expectancy increases to 87 years, with a 1 in 4 chance of reaching 94 years and a 1 in 10 chance of reaching 98 years.  You would question whether an annual withdrawal rate of 8% is likely to be sustainable for males to age 85 or females to 87. You would not want to find yourself in the 1 in 10 males or females that live into their late 90s with a retirement income strategy which ran out many years earlier.

The issue has been exacerbated as a result of the Pensions Freedom which was introduced in 2015.  That feeling that you can dip into your pension pot without restriction has crept in across many retirees and their withdrawal levels crept up accordingly.  We believe that Pensions Freedom is a good thing, but need to be used wisely.  Over the next few weeks, we will look at different ways you can take benefits from your pension pot from purchasing an annuity to various options under Pensions Freedom. 

If you wish to discuss drawing benefits from a pension in more detail, please contact corryn.wild@three-counties.co.uk or telephone the office on 0191 230 3034.


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Following the Prime Minister's announcement, we wish to reassure all of our clients that we will remain fully operational.  All staff are working from home and normal service will be maintained as a result.

We can be reached by calling our usual telephone number on 0191 230 3034 or emailing admin@three-counties.co.uk

As ever, our focus remains on managing your investments and financial plans through these most challenging times.  Please do not hesitate to get in touch.