Age UK’s new research, based on a £29,000 pension pot - well above typical pension savings - revealed that if people withdrew £3,000 a year from the age of 65, and returns on the remaining savings were 3%, their savings would run out when they were 75.
If the annual withdrawal increases by an estimated annual rate of inflation, people would run out of money when they were 74.
Drawing less each year (£2,000) would mean the money would last longer, but only until age 81 (or 80 if withdrawals increased annually). Even if returns on remaining savings are higher, at 5%, people withdrawing £3,000 a year would still have run through their savings when they were 76 (or 75 with increasing withdrawals).
Additionally, new research from Aegon has found that one in ten people (12%) believe their pension income will need to last just ten years, leading to growing fears that a significant number of people may underestimate how long their pension needs to last.
Age UK are now arguing for quality standards and charge caps to be introduced on income drawdown products to stop people who invest their pension pots potentially losing thousands of pounds in income.
Their report calculates that a £29,000 pension pot invested in a high charging drawdown product, drawing £2,000 a year, with an initial 2% charge to set up the product, additional annual 2% management fees and £150 in annual administration charges, would provide £11,000 less in income than a similar product with a single low charge of 0.75%.
Despite the planned introduction of pensions guidance in April for those reaching pension age, Age UK have said that the new pension reforms do not include enough safeguards to help people understand the impact of their decisions about their pension pots and to help them make the most of their savings.
In addition, Age UK is concerned that action is taken to prevent any surge in pension scams in the wake of the reforms. Pension liberation scams have already cost £495 million. Age UK is calling for a strong lead agency to be nominated to reduce the risks.
Caroline Abrahams, Charity Director of Age UK, said:
"We welcome people having more flexibility in how to use their pension savings. But that makes it even more important that we fully understand the implications and consequences of our financial decisions and can trust the financial services in which we have invested.
"That’s why we believe that there must be additional checks and balances introduced to the pensions legislation in addition to the impartial guidance that will be available.
"This is too important to leave to chance. We believe, if implemented, our eight point plan would give people the added security and reassurance they need to know that they are making the most of their hard earned savings."
Tony Stenning, Chairman of The Savings and Investment Policy project, said:
“The findings from the Age UK report demonstrate how important it is for us to educate savers on how best to access and manage their retirement savings. The new pension freedoms set to be introduced on April 6th is good news, as savers will be offered much greater flexibility in how they use their pension to meet their personal financial needs in retirement. Although this is a step in the right direction, there is still much to do in the UK to encourage people to save from an early age. We need to demonstrate the benefits of saving and who how best to manage these savings to ensure people are financially secure.
“When we published our first report in March 2014 we highlighted how a potential retirement tipping point would be reached in 2035 unless action was taken now. This has to change, which is why the financial services industry has come together with consumer bodies under this TSIP grouping to develop strategic proposals for new savings and investments policies which we hope will make saving easier and help rebuild consumer confidence and trust in long term savings. The findings from Age UK highlights the scale of the challenge facing both the industry and policy-makers to provide many people with the means to save and have that happy retirement.”
