Varying Opinions Over The Amount Deemed Safe To Withdrawal From Pensions
Experts advise on the ideal yearly amount to take out of a pension.
Data published by the Association of British Insurers details the amounts of money taken out of pension schemes in the first year of “pension freedoms”. The insurers believe “a minority may be withdrawing too much too soon” in a manner that is risky.
The data shows how the British people are reacting to the new freedoms but what amount is safe to withdrawal is open to debate.
Over 10%
3,379 pension pots had over 10% of their total value withdrawn in the first 3 months of 2016. At this rate over 40% of the pot would be gone within a single year, an amount that is unsurprisingly only recommended if someone has another source of income.
4%
72,275 pension pots had 4% or less of their total value withdrawn. 4% has been thought of in the U.S. as the optimum figure in order to enjoy the best return over a period of around 30 years, a sensible time-frame when dealing with pensions.
When studied by the investment analysis firm Morningstar however it was shown that the amount released varied greatly over time in the U.S. specifically. At the height of the stock market boom of the 1980’s, 10% was withdrawn but the 1930’s, 1970’s and 2000’s saw just 2.5% taken out.
2.5%
Morningstar found that for the U.K., 2.5% would have been the most efficient amount to withdrawal in the past. Its future prediction is that 3.2% is the top end of what is desirable.
Inheritance Tax
Protected from inheritance tax, pensions may also be seen by some as a favourable way to pass money on to beneficiaries. Wanting a sum of money to remain after death complicates calculations and further demonstrates that people should seek professional financial advice.
Paul Hoskin
THIS BLOG PROVIDES INFORMATION, IT IS NOT ADVICE. ANY OPINIONS ARE GIVEN IN GOOD FAITH AND MAY BE SUBJECT TO CHANGE WITHOUT NOTICE. OPINIONS AND INFORMATION INCLUDED WITHIN THIS EMAIL DO NOT CONSTITUTE ADVICE. (IF YOU REQUIRE PERSONAL ADVICE BASED ON YOUR CIRCUMSTANCES, PLEASE CONTACT US AT HOSKIN FINANCIAL