Nearly half of those using pension freedoms are worried about running out of money

Engagement gap could be leading to poor decisions.
25 October 2017

As HMRC data shows demand for the pension freedoms continues to grow, new research from AJ Bell suggests a lack of understanding of the new rules means that many people using them are worried about running out of money.

The latest HMRC data shows that 198,000 people made withdrawals totalling £1.59 billion in Q3 2017, an increase from 158,000 people withdrawing £1.54 billion in the same period last year.

AJ Bell surveyed 250 British adults aged 55+ who have started taking flexible withdrawals from their pension since 6 April 2015. 

The research suggests that the growing demand for the pension freedoms has been driven primarily by people wanting control over their retirement savings, with half the people questioned (52%) giving this as a reason for not purchasing an annuity.  The poor value perceived in annuities is also a major contributing factor, although this was a distant second with only 30% of people citing that as a factor. 

It appears the pension freedoms are having their desired effect, with just over three quarters (78%) of people questioned saying they felt in control of their retirement income. 

However, the risks that come with remaining invested in retirement are clearly weighing on many people’s minds.  Almost half (46%) of respondents say they worry about running out of money. 

This angst is not helped by the fact that many people do not understand some fundamental elements of their pension savings.  For example, over half (53%) of those questioned don’t know how their pension fund is invested and a quarter (26%) never review the amount they are withdrawing.

Tom Selby, senior analyst at AJ Bell, comments:

“UK pension savers clearly want more control over their retirement savings and the pension freedoms have been remarkably successful at delivering this.  However, in return for this control they have taken on the investment and longevity risk that previously would have sat with annuity providers.  This trend has significant long term implications which we are yet to see play out.

“To control investment risk people need to have a clear investment strategy and yet over half of don’t know how their pension fund is invested.  To control longevity risk people need to have a realistic idea of how long they will be able to sustain their withdrawals for, yet a quarter of them never review the amount they are withdrawing.

“The bottom line is that almost half the people using the pension freedoms are worried about running out of money. Savers will struggle to achieve peace of mind unless they engage in the process, understand the various risks and build a sustainable retirement income plan. Many appear not to be doing so at the moment and this engagement gap could have serious repercussions further down the line.

“It is vital the Government, regulators and the industry continue to monitor the progress of the pension freedoms and communicate with savers to give them a better understanding of retirement issues. Failure to engender genuine engagement and improve the availability and take-up of regulated advice and guidance risks leaving a generation of savers fumbling through the pensions wilderness.”

Methodology note

ComRes interviewed 250 British adults aged 55+ who have entered pension drawdown since 6 April 2015 and have not purchased an annuity online between 20th and 21st July 2017. ComRes is a member of the British Polling Council and abides by its rules. Full data tables are available on the ComRes website,

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