Average regular pension withdrawal rate jumps from 4.7% to 5.9% – FCA

Tom Ellis writes

The average annual pension withdrawal rate jumped more than one percentage point between 2016/17 and 2017/18, according to the latest data from the Financial Conduct Authority (FCA).

The regulator’s retirement income data bulletin said the average withdrawal rate from drawdown or UFPLS (uncrystallised funds pension lump sum) pots – where a regular payment is set up – rose from 4.7% to 5.9% over the last two financial years. In this context, the FCA data compares the mid-point for each withdrawal rate band (see graph below).

Although the financial watchdog’s data shows many of the pots that were drawn down by 8% or more were small pots, more than 20,000 pots worth more than £100,000 were accessed at this higher rate.

The following graph shows that a withdrawal rate of 8% or more is generally the most popular drawdown rate for each segment of pots worth up to £249,000.

Source: FCA

Indeed, as can be seen above, a withdrawal rate of 8% and above was the most popular rate of withdrawal, with more than 90,000 pots being drawn down at that level.

The number of pots being accessed at a rate of less than 2% saw the biggest change year-on-year. Some 90,581 pots were drawn down at a rate of less than 2% in 2016/17 – a figure that fell drastically down to 27,963 in 2017/18.

Source: FCA

While more pots were subject to more aggressive withdrawal rates from their holders, the number of pension plans where the holder made regular withdrawals remained at around 276,000 in both 2016/17 and 2017/18.

Nucleus product technical manager Rachel Vahey said: “The high rates of withdrawal for the smaller pension pots are probably not surprising. People are using the pension savings to fund income needs now rather than set up a sustainable income.

“But the higher rates for the medium-sized pots is more surprising. It is worth pointing out that these figures are a snapshot. We do not know for these people their personal circumstances, what other income they have, and their health.”

She added: “Having said that, setting up withdrawal rates over 8% is obviously unsustainable – the pot of money stands a much bigger chance of running out sooner.”