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5 Mar 2020

Savers withdrawing too much from their pension: are you at risk of running out of money?

Some 40% of pension withdrawals are being taken at an annual rate of 8%

The average rates at which over-55s are withdrawing money from their pension could see them running out of money in retirement if they don't have any other sources of income.

That's according to the Association of British Insurers (ABI), which says full withdrawals have risen to their highest level since the pension freedoms were introduced in 2015.

Worryingly, 40% of withdrawals are being taken at an annual rate of 8% or more. The ABI says this is 'unsustainable' and that withdrawing 7% annually only gives you a 60% chance of not running out of money.

Here, Which? looks at how much money you'll need to live on in retirement and suggests ways you can boost your pension pot.

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How much do you need to save for retirement?

To put it bluntly, your pension savings will need to last until you die.

The freedoms give defined contribution savers more flexibility and choice, but with this comes more responsibility to ensure you don't face an income shortfall in retirement.

Which? has analysed how much you'll need in retirement, depending on whether you're single or in a couple at the point you retire, and the kind of lifestyle you want.


Couples need to generate an income of £42,000 a year to have a luxurious retirement that includes long-haul holidays and new cars every five years.

To generate this amount, our calculations show you will need to save in excess of £500,000 to use income drawdown (leaving your pot invested and drawing an income from it) or £695,000 if you were to use an annuity (which sees you swapping your pension savings for a guaranteed income for life).

The chart below gives you an idea of how much couples spend in retirement.


Single people, on average, need £33,000 for a luxurious retirement, which means they will need to have £481,000 saved to use drawdown or £622,000 to buy an annuity.

Some things cost about the same for those on their own. Single-person households spend an average of 83% of the outlay compared with their two-person counterparts on housing and insurance, and 78% of their expenditure on utility bills.

Our research factors in the impact of tax, as well as the state pension.

Is the state pension alone enough to live off?

Your state pension - which you start getting when you reach your state pension age (SPA) - will provide a modest income, but probably won't pay for the retirement you're after.

Currently, the new state pension pays £8,767.20 a year, while pensioners who reached SPA before April 2016, receive £6,718.40 a year.

Although this income is set to get a 3.9% boost from April, it's unlikely to be enough.

How to boost your pension savings

There are many ways you can up your pension savings to meet your goals, depending on where you're in your retirement journey.


The earlier you start saving, the better.

Next time you get a wage rise, it's worth putting this towards an increase your contributions.

For example, in a workplace pension scheme, the total minimum you need to contribute to your pension each month rests at 8% (5% minimum from you, 3% minimum from your employer).

If you increase your monthly contribution by just £20 per month and get an annual investment return of 5%, you'll pay an additional £4,800, but get back £8,220 according to analysis by The People's Pension.

If you can, it's worth adding in lump sums such as an inheritance to your pension to boost your income.


If you're over 55 and want to retire, it's not too late to boost your income.

One thing you can consider is deferring your private pension.

If you're in a defined contribution scheme, delaying when you claim means that you leave it invested for longer, so you could have a bigger pension pot when you come to retire.

Deferring also means that you can continue to save as much as £40,000 a year into a pension and earn tax relief under current rules.

You could also consider deferring your state pension.

Choosing to defer for five weeks or more means that, once you do start claiming your state pension, you'll receive more than you otherwise would have.

It can also help you manage your tax liability if you don't want to be pushed into a higher income bracket.

For example, if you receive £129.20 per week (the full basic state pension), you'll get an extra £13.44 a week by deferring for 52 weeks.

Annuity vs drawdown

When you come to retire, you'll also need to decide how you want to receive your income.

This can be done via:

An annuity

These are insurance products that allow you to exchange some or all of your pension for regular income for life.

Annuities are great if you want the security of a guaranteed income that rises with inflation, but you could be risking a lower income if you get a bad deal.

The amount you get depends on your age, health and a variety of other factors, such as how much is in your pension pot.

It's also worth mentioning they're non-refundable, so there's no going back if you decide to buy one.


This involves reinvesting your pension in funds designed specifically to generate regular income.

With drawdown, there are no restrictions and you can take all of your pensions as a lump sum - you'll need to pay tax on the excess over the 25% tax-free amount.

There is more risk with this option as your pension remains invested, but it could also be a good thing if the value shoots up.

The key takeaway from this is that it's really important to evaluate all of your options.

You can do this by speaking to a financial adviser, but take note of the costs associated with this.

How can I track all of my pensions?

If you have several pension pots with different providers, it may be a good idea to combine them into one to make it easier to track your savings and help you to estimate your income in retirement.

Which? has long been calling for the introduction of a pensions dashboard, which will allow you to see all of your pensions in one place online and has pressed the government to ensure that it shows users their state pension entitlement, projected private retirement income and information about pension charges.

It was originally promised to be designed, funded and launched by 2019, but a prototype version probably won't be available until at least 2021.

For now, the pensions tracking service is a free-to-use platform that searches a database of more than 200,000 workplace and personal pension schemes. All you need is the name of the employer or pension plan.