To control for these factors, the report asked people whether they have taken a lump sum out of their DC pension in the past two years and whether the withdrawal represented the full pot available.
It was discovered that average amounts are smaller among those lower down the wealth distribution, but that the opposite is true for amounts relative to overall wealth, with the larger average drawdowns representing a smaller proportion of total wealth at higher points of the wealth distribution.
The report stated that the fact that the full withdrawals represent such a small proportion of people’s overall wealth may indicate that the high prevalence of full withdrawals among those accessing their DC pots for the first time may be down to many of those people having other resources available to them.
However, the report cautioned that it would be possible assess this further by comparing the characteristics of people who have taken out a pension pot in full and those of people who have not.
IFS research economist and author of the report, Heidi Karjalainen, said: ‘It can be difficult for individuals to decide how to access savings in a defined contribution pension, and indeed many of those approaching retirement report that they do not know how they will access their pension pots.
“For many of those currently in their 50s, these are ‘low-stakes’ decisions, as they have significant other retirement resources available to them. But that will change as future generations will rely more heavily on defined contribution pension pots for financing their retirement."
Karjalainen added that developing how best to support people to make good financial decisions when accessing defined contribution schemes is "crucial", so that individuals are protected against adverse outcomes through their retirement.
tom.dunstan@ft.com
What's your view?
Have your say in the comments section below or email us: ftadviser.newsdesk@ft.com
