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People banking on pension pots delivering 10% a year for life

08/04/2015

On average retirees plan to withdraw around 10% each year, but nearly half of those approaching retirement have no real idea how long their income will last

According to new research conducted by YouGov and Wealth Manager Old Mutual Wealth, nearly half (48%) of those approaching retirement (aged 55-64) do not know how long their pension income will last. With pension providers reporting demand for flexible withdrawals this week there is a significant danger that pension funds could run dry if people do not plan carefully or take financial advice.

The survey* of 1,000 people aged 55 or over found that the average pension pot was £87,500 and the amount people expect to take from their pension in income each year is just over £9,000 on average.

Even with a growth rate of 5% per annum applied to the pension savings, on that basis the average pension pot of people who now have access to the new pension freedoms could last just 10 years.

Worryingly, 22% of people said they have no alternative sources of income and admit that they will rely solely on the state pension. 36% say they will continue to work, even if only part time to supplement their pension income and the remainder have other sources of income such as property or other investments to fall back on.

Carlton Hood, customer director at Old Mutual Wealth, says: “Working out how long your pension savings will last is not a simple matter. Many people apply a rule of thumb and plump for 10%, thinking that’s a reasonable amount and that their investments will grow to fill their pot back up. Basically they’re banking on taking 10% a year forever. The reality is that if they aimed to take around 5% each year instead, their savings are much more likely to last for the 20+ years people generally spend in retirement these days.

“Of course the most important decision we can make comes before retirement. Increase contributions now if you can to grow your pension pot. Adding more to your pension as soon as possible gets the benefit of Government contributions, the possibility your employer will match your additional contribution, and gives your money time to grow.

“The new pension freedoms are great for those who want more control over their money, but the responsibility is now firmly with the individual to ensure they have enough money to last their lifetime. Some people will feel confident enough to work it out themselves but, for many, expert financial advice can help construct a clear plan based on their individual needs.”

* All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 1023 adults. Fieldwork was undertaken between 11/03/2015 - 17/03/2015. The survey was carried out online.

For more information contact

Tim Skelton-SmithOld Mutual Wealth02380 916 99807824 145 076tim.skelton-smith@omwealth.com

Notes to editors:

Quilter is a leading wealth management business in the UK and internationally, helping to create prosperity for the generations of today and tomorrow.

On a ‘go forward basis’, Quilter oversees £ 111.6 billion in customer investments (as at 31 March 2018).

It has an adviser and customer offering spanning: financial advice; investment platforms; multi-asset and single strategy investment solutions; and discretionary fund management.

The business is comprised of two segments: Wealth Platforms and Advice and Wealth Management.

Wealth Platforms includes the Old Mutual Wealth UK Platform; Old Mutual International, including AAM Advisory in Singapore; and the Old Mutual Wealth Heritage life assurance business.

Advice and Wealth Management encompasses the financial planning network, Intrinsic; Old Mutual Wealth Private Client Advisers; discretionary fund management business, Quilter Cheviot; and Old Mutual Wealth’s multi-asset investment solutions business.

The Quilter businesses will be re-branded to Quilter over a period of approximately two years following separation from Old Mutual:

  • Intrinsic to Quilter Financial Planning
  • Private Client Advisers to Quilter Private Client Advisers
  • The Multi-Asset business to Quilter Investors
  • The UK Platform to Quilter Wealth Solutions
  • The International business to become Quilter International
  • The Heritage life assurance business to Quilter Life Assurance
  • Quilter Cheviot will retain its name.

On 19 December 2017, Old Mutual Wealth announced that it has agreed to sell its Single Strategy asset management business to the Single Strategy Management team and funds managed by TA Associates. The proposed transaction is subject to customary closing conditions, including regulatory approvals. 

Quilter is part of Old Mutual plc, a FTSE 100 group that provides investment, savings, insurance and banking. For the year ended 31 December 2017, Old Mutual reported an adjusted operating profit before tax of £2.0 billion. For further information on Old Mutual plc and the underlying businesses, please visit the corporate website at www.oldmutualplc.com.

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