The changes to the pensions industry introduced earlier this year have provided those over 55 with the freedom to make important decisions on how to spend their hard-earned pension savings without following the traditional route of purchasing an annuity. However, the excitement could soon be over following a new report by the Social Market Foundation, which focuses on two decades of data on the spending habits in countries where similar pension freedoms are already fully established.
The recent report has used data from countries like the US and Australia to predict how savers will fare if they chose to make full use of the increased freedom now available.
The findings highlighted that four out of 10 Australians spent their savings before they turned 75 after spending 11.6% of their retirement pot a year. If British over 55s follow in the same footsteps of pensioners in Australia, 40% of pensioners could run out of money by the age of 75, just 10 years into their official retirement.
Alternatively, if pensioners in this country adopt similar spending patterns to those in America, who spent 8% of their savings a year, they could still be at risk of running out of money. For example, a man retiring at 65 in America would be expected to run out of savings five years before death, while a woman would have to manage for seven years.
It is still too early to say if the spending habits of UK pensioners will mirror those from other countries. However, sums already withdrawn following the reforms exceed government estimates. According to HMRC, savers have collectively withdrawn £2.7 billion since April, an average of £13,500 each, from their pensions.
Therefore, following these concerns, it is vital that those looking to take advantage of the changes to the UK pensions industry seek financial advice before accessing retirement savings. Whilst the freedom and flexibility can be a great thing to help maximise your savings, education regarding the right strategy is essential to avoid withdrawing money from your pension pot at an unsustainable rate.
If you are looking to take advantage of the reforms and would like to secure a comfortable retirement, contact Retirement and Investment Solutions to arrange your Pension Reforms Review meeting at the cost of just £325.