Large Pension Withdrawals Could Mean Later Life Hardship

12 Mar

Experts have warned that at the rate people continue to withdraw from their pension pots, future pensioners could experience money risks later in life, and some may even find themselves without enough to fully fund their retirement.

Data reports have shown that savers withdrew an estimated £2.4bn from their pensions between July and September 2019. The Financial Conduct Authority (FCA) says that 48% of pots are accessed without the holder taking regulated advice or financial guidance.

The Association of British Insurers (ABI) have expressed a concern that the reason why people are withdrawing cash from their pots is due to a ‘black hole’ in guidance and advice.

Craig Butler, Chartered Financial Planner, Head of Wealth Management at Thomas Carroll and member of the Society of Later Life Advisers shares his thoughts on what you need to consider when managing your future financial plans below.

Everyone’s ‘safe withdrawal rate’ is different

“There are many factors clients need to take into account when determining how much should be drawn from pensions, such as their age, their income needs, what other income sources they have and how expenditure is expected to fluctuate throughout retirement.”

Ongoing cashflow forecasting is key

“Circumstances, and therefore income requirements, will commonly change over time, which we typically see as being U shaped. Spending is usually higher in the early years of retirement, which then falls back as we age, with higher costs in later life when care needs may arise. It’s important to understand your core income requirements, such as the running costs of your household and what non-essential income requirements you have.”

“Cashflow modelling can help you understand how your pension can meet these changing needs and how withdrawals from pensions can best complement other income sources to meet these changing needs over the course of retirement.”

Get the balance between risk and reward

“Getting the balance between risk and reward is vital and determining an appropriate level of risk to take is individual for each client. Take too much risk and the pension fund will perhaps be too volatile and might fall at a time when you need to draw an income. In contrast, take too little risk and the pension fund might not grow sufficiently to keep pace with your expenditure plans and the things that you might want to spend money on in the future.”

Build in a safety buffer for times when stock markets are volatile

“Stock markets will fall as well as rise and the effects of a fall will typically affect those relying on their funds in retirement most to provide a steady income stream. Therefore, it’s important to hold some monies readily available in cash. Having a readily available cash reserve you can draw on during periods of market falls can reduce the pressure on your pension during these. Everybody will have different cash buffer requirements and an Independent Financial Adviser can help you to understand what this should be.”

Have you planned for care fees?

“This is a really important issue that affects many of us in later life and is probably not talked about enough. Some of us might need long-term care, either in our own home or in residential care and these costs can increase what income you need substantially. In many cases, people need to fund this themselves which can put a strain on a pension and personal assets. Considering your life-long needs early and planning ahead can help greatly and in turn, can help preserve your assets for your family.”

Need advice?

If you have any questions or would like further guidance on pensions and retirement planning, please contact Craig Butler today on 02920 853750 or at