The latest figures from the trade body show that during the first three months of this year, 4% of UK savers – or 3,379 people – had withdrawn at least 10% of their pots, while many others withdrew their whole pot in one go.
The research shows cash lump sum payouts reached £8.2bn ($10.5bn, €9.5bn) for the first full-year since the UK’s pension freedoms were introduced in April 2015.
“There are signs a minority may be withdrawing too much too soon and at rates that would see their money run out in a decade or less, if they are reliant on their pension pot as their main source of income,” said the ABI in a statement on Monday.
Yvonne Braun, the ABI’s director of policy, described the trend as a “warning sign that requires further investigation”.
“We need a full picture of these customers’ circumstances and income, which is something we urge regulators and the government to work with all stakeholders to examine,” she added.
However, Braun was keen to point out that some savers may have multiple pots or other sources of regular income.
“There may well be other factors at play here, such as people having other retirement income, for instance, final salary pensions or multiple pots,” she said.
‘Sensible approach’
Despite the warning, the ABI data found that on the whole the majority of savers were taking the “sensible approach” when withdrawing money from their pensions, with 57% of people taking out just 1% or less during the last quarter.
Overall, of the £8.2bn withdrawn, £4.3bn was paid out in lump sum payments averaging £14,500, while £3.9bn was paid out via drawdown payments amounting to an average of £3,800.
Tom Selby, senior analyst at online platform AJ Bell, believes those withdrawing 10% or more from their retirement savings will likely have other sources of income.
“The early signs suggest most savers are using the freedoms sensibly and are not draining their pots too fast, too soon.
“The figures show one in 25 savers are taking upwards of 10% of their pot at a time – while this would not be sustainable if the pension were their sole income source, many will have other pension pots, savings vehicles or wealth not captured by the data,” he said.
Fall in annuities
Meanwhile, sales for annuity products fell in the second quarter of this year, with £950m invested, compared to £1.1bn last quarter.
Drawdown sales hit £6.1bn in the year following pension freedoms, with 90,700 drawdown products being opened since last April, with an average fund size of £67,500.
This compared to £4.2bn invested in 80,000 annuities over the same period. The average fund size for annuities is £52,500.
Braun said the data show that the freedoms have been implemented successfully, and are “working as intended”.
She added that the fall in annuity sales in the most recent quarter reflects ongoing pressure on rates.
“This will not have been helped by the recent decision to lower interest rates to a 300 year low, and further quantitative easing measures.”
