A new report from leading stockbroking form AJ Bell suggests that many of those who have taken advantage of pension freedoms have accessed too much of their pension pot, potentially compromising their retirement prospects.
The figures show that of the people questioned who had taken advantage of pension freedoms, 44% were withdrawing more than 10% every year. With the average pension pot being £118,000, this means that pension pots could last just 12 months if withdrawals continue at the same pace. Worryingly, it's those who are in the younger age group that are withdrawing the most, with 57% of 55-59 year olds withdrawing more than 10% annually.
Tom Selby from AJ Bell said that many people are underestimating how long their pension income will need to last.
"It seems that people using the pension freedoms are playing a life expectancy guessing game and are often coming up short. The evidence from our research suggests many people might be severely underestimating how long their pension income will need to last for and as a result the levels of withdrawals they are choosing to make look questionably high in many cases."
According to the report, most of the people questioned had other sources of income that they could rely on in future years. However, some did not, and it is these people who should seriously consider the withdrawals that they are making.
"Anyone who is using the pension freedoms needs to have a realistic idea of how long their pension income might need to last for and what level of investment return they can hope to achieve," he said. "They can then work out how much they can withdraw each year without running out of money too early. Even then, the level of withdrawals should be reviewed regularly, something that far too few people are doing."