Pension withdrawals decline as economic uncertainty rises

Probably too small a sample to base a policy on, but research from online pension provider, PensionBee, reveals that average quarterly withdrawal amounts for all customers declined by over 10%, from £13,132 their pension invested as their withdrawal rates decreased by 10% and 12% respectively.

Table 1: Average quarterly withdrawal amounts for PensionBee customers in Q1 2021 – Q1 2022

Source: PensionBee, May 2022. Based on 2,079 customers as at 31st March 2022. Rounded to whole numbers.

On average, male savers’ quarterly withdrawal amounts fell from £14,261 in Q1 2021 to £12,783 in Q1 2022. However, their withdrawal amounts remained significantly larger than those of female savers, whose withdrawals fell from £9,809 to £8,602 over the same period.

Table 2: Average quarterly withdrawal amounts for male customers in Q1 2021 – Q1 2022

Source: PensionBee, May 2022. Based on 1,530 customers as at 31st March 2022. Rounded to whole numbers.

Table 3: Average quarterly withdrawal amounts for female customers in Q1 2021 – Q1 2022

Source: PensionBee, May 2022. Based on 549 customers as at 31st March 2022. Rounded to whole numbers.

Despite a noticeable decrease in average quarterly withdrawal amounts, the proportion of customers aged 55+ who made withdrawals largely remained the same from Q1 2021 to Q1 2022.

What is this telling us?

On one level this makes no sense at all, people have the same income need today as they did a year ago, indeed the uptick in inflation should mean people should be withdrawing more than less.

On another level this shows rational behaviour, people are hoarding their income and avoiding selling units at a discounted price (assuming the current market conditions are considered to be exceptional (rather than the start of a long-term bear market).

or as  Romi Savova, CEO of PensionBee, commented:

“Record high inflation rates and recent stock market volatility have forced retirees to evaluate how they interact with their savings, impacting when and how much they withdraw from their pension.

Given these macroeconomic factors, it seems sensible that savers have adopted a more cautious withdrawal approach as they expect their money to stretch further for longer. This wider trend of saving more and spending less could also indicate that many pension savers are preparing for an impending cost of living crisis.

As always, timing is crucial with pensions, so I would encourage all savers to make an informed decision on when they choose to access their savings, as this can have a significant impact on their overall retirement income.”

Making an informed decision?

Pension Bee is positioned to help well informed customers. It’s policyholders are taking an active decision to transfer to Pension Bee and Pension Bee are able to give guidance as the sustainability of withdrawal rates. It also makes it easy for savers to adjust their spending online.

This is not always the case.

The reality for many savers is that they consider  flipping from 8% withdrawals (the typical rate indicated by the 1FCA retirement income study), to a panic freeze on withdrawals.

Despite Romi’s soothing comments, I fear that drawdown is not something tat can be generally managed by informed choices. The markets that have been most heavily hit by the cost of living crisis are the bond markets. which are supposed to be “defensive12. People who made informed choices to provide themselves with cautious managed funds that provided all-weather income solutions are now finding those funds are doing no such thing.

The point of a pension is that it provides a wage in retirement that is paid whatever the market conditions. That is what the various variants of CDC aim to do. Critics of CDC should be looking at the behaviour of Pension Bee drawdown customers and asking themselves what hope drawdown offers the mass of people looking for a pension from their pot.