As much as £6bn will be withdrawn from pension pots in the four months from April due to the new pension rules, according to Hymans Robertson.
The consultant has predicted an acceleration of money out of pots following the introduction of the changes, first announced in last year’s Budget in March, which will allow individuals to access their defined contribution (DC) pension pots from age 55 without the need to buy an annuity.
Hymans Robertson said the £6bn figure was based on three assumptions:
– A faster and “front-loaded” withdrawal of £10bn to £15bn previously invested in annuities.
– About 5% (£4.5bn) of the available £90bn currently in the pension pots of over 55s will be withdrawn next year.
– Some individuals will opt for full or partial defined benefit (DB) to DC transfers and typically withdraw the money faster than a DB benefit would have paid out – previous research by the consultant has revealed 30% were likely to opt for such transfers.
Hymans Robertson partner Chris Noon explained: “As a consequence of the retirement revolution, individuals are likely to withdraw their pension savings at a much faster rate than they would have done when they were forced to buy an annuity. Pre the 2014 Budget announcement, each year £10-£15bn of pension was invested in annuities. These were the funds of people ‘retiring’.”
However, Hymans warned the “big unknown” was the extent to which over 55s who were not retiring would access their pension assets.
Noon added: “From April, anyone over the age of 55 will be able to access the money in their pension pots, even if they are not planning to retire. They may take this money out to pay debt or to take a special holiday, for example.
“The pensions industry needs to find ways of helping consumers exercise these new freedoms in an informed way. Much of the focus since the Budget announcement has been on helping people at the point of retirement through initiatives such as the guidance guarantee. As is the case in the current regime, many retirees will discover an unpleasant truth at this point: their fund produces a disappointing lifetime income.”
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