Ten Years of Pension Freedoms: What the Evidence Shows

The April 2015 pension freedoms reforms were presented as a revolution. Before that date, most people with defined contribution pensions had to buy an annuity at retirement, accepting a fixed income for life in exchange for their accumulated savings. From April 2015, the rules changed entirely: you could take your pension however you chose — as drawdown, lump sums, an annuity, or any combination — from age 55 onwards.

The critics predicted disaster. "People will blow their pensions on Lamborghinis," was the tabloid version; "many retirees lack the financial literacy to manage drawdown portfolios for 30 years" was the academic version. Supporters argued that paternalistic compulsion to buy annuities at historically low rates was indefensible and that most retirees would manage their money sensibly.

A decade on, with data available from FCA reviews, academic studies, and DWP statistics, the evidence tells a more complex story than either side predicted.

Important: This guide is for general educational purposes. Past patterns of behaviour do not predict individual outcomes. Pension planning decisions are personal and depend on individual circumstances. Seek regulated advice before making drawdown, annuity, or lump sum decisions.

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The Policy Context: What Changed in April 2015

Before April 2015, defined contribution pension holders faced a set of rules that were heavily constraining:

• The "compulsory annuity" requirement (removed in 2011, but replaced with "capped drawdown" which limited annual withdrawals) meant most people effectively bought annuities in practice
• Annuity rates were at historic lows in 2012-2014, making the compulsion to buy annuities particularly unpopular
• Capped drawdown was available but set at a level (100% of GAD rate, later changed) that limited flexibility

The 2015 reforms introduced "flexi-access drawdown" — no annual withdrawal limits, no requirement to ever buy an annuity, and the right to take the entire pension as a cash lump sum (subject to income tax on 75% of it). The reforms also extended the freedom to take "uncrystallised fund pension lump sums" (UFPLS) — ad hoc withdrawals from an untouched pension, 25% tax-free each time.

The reforms were the most significant change to DC pension rules in decades.

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The Predicted Catastrophe: What Didn't Happen

The most pessimistic predictions centred on rapid pension depletion — people withdrawing everything immediately and spending it. The data does not support this. FCA and DWP research shows:

Most drawdown entrants are drawing at sustainable rates. The median withdrawal rate from drawdown funds has consistently been in the 3-5% per year range — consistent with long-term sustainable withdrawal rates based on historical market data. This is broadly sensible.

The annuity market did not collapse entirely. Annuity sales fell sharply after 2015 (by approximately 75% in the first year), but stabilised as higher interest rates from 2022 onwards improved annuity rates and made them more competitive. Annuity sales recovered materially in 2022-2025.

Few large pots were fully encashed immediately. For higher pot sizes (above £100,000), the vast majority of pension holders chose drawdown or partial encashment rather than taking everything at once. The tax disincentive is significant: a £200,000 pot taken as a lump sum in a single tax year results in £150,000 being taxed as income — much of it at the 40% or 45% rate.

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What the Evidence Does Show as Problems

1. A Minority Drawing Unsustainably

While the median withdrawal rate is sensible, a meaningful minority of drawdown participants are drawing at rates that will deplete their pension before they die. FCA data shows approximately 15-20% of drawdown entrants drawing at rates above 8% per year — rates that, based on historical market returns, carry a significant probability of pot exhaustion within 15-20 years.

For a 65-year-old drawing at 10% per year, the pension pot may last 12-15 years in a median scenario. By age 80, the pot could be exhausted — exactly when healthcare costs typically rise and the ability to generate alternative income typically falls.

2. Investment Risk in Default Drawdown Funds

A persistent finding of FCA reviews is that many people entering drawdown are still invested in their accumulation-phase pension funds — typically a balanced or growth-oriented multi-asset fund. Accumulation funds are optimised for long-term capital growth; they can be highly volatile in the short term.

For someone in drawdown, a major market fall in the first five years of retirement can cause severe and permanent portfolio damage — the "sequence of returns risk" effect. Selling units at depressed prices to fund income withdrawals reduces the number of units available to benefit from any subsequent recovery.

Drawdown-specific investment strategies (typically incorporating more stable assets for near-term income needs, with growth assets for longer-term capital) are more appropriate in drawdown, but many pension holders — particularly those in occupational DC schemes that rolled into drawdown — have never been guided to switch to an appropriate drawdown fund.

3. The Over-Cautious: Those Not Drawing at All

At the other end of the spectrum, some drawdown participants are drawing nothing or very little from their pensions — either because they have other income sources, or because they are uncomfortable with the responsibility of managing a drawdown portfolio and are paralysed by indecision.

For those with other income (ISAs, investment accounts, rental income), leaving the pension growing is potentially a good strategy — particularly given the IHT exemption (until April 2027). But for those who are not drawing due to anxiety about depleting their savings, the result is sub-optimal income in retirement and a potential tax inefficiency (large pension pots crystallising at death, or large PCLS withdrawals late in life that fall outside the personal allowance).

4. The Guidance Gap

Pension Wise — rebranded as the Money and Pensions Service (MaPS) Guidance Service — was created specifically to provide free, impartial guidance to those approaching retirement. It is available to anyone aged 50+ with a DC pension.

Despite being free, easily accessible by phone or in person, and well-regarded by those who use it, Pension Wise guidance is used by only approximately 30% of those entering drawdown. The majority of people making complex, high-stakes, one-way financial decisions about their retirement are doing so without any professional guidance.

This is the evidence-based case for requiring regulated advice for larger drawdown decisions — a regulatory debate that has continued since 2015 without resolution.

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The Death Benefit Evolution: A New Estate Planning Asset

The pension freedoms created an unintended but significant consequence: unused pension pots became a powerful estate planning vehicle. Under pre-2015 rules, unused pension funds were taxed heavily on death. Post-2015, unused DC pensions passed free of IHT on death, and (for pre-75 deaths) free of income tax too.

This changed the planning calculus for many higher-net-worth individuals. Rather than drawing down the pension for income, the optimal strategy for those with other income sources was often to leave the pension untouched — spending ISAs, investment accounts, and other assets first, preserving the pension as an IHT-exempt inheritance for children or other beneficiaries.

The pension became a multi-generational wealth transfer vehicle. This was not the policy intention of the pension freedoms (which were aimed at individuals' retirement income choices, not estate planning), but it was a logical and rational response to the rules as they stood.

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The April 2027 Budget Reversal: The End of the Estate Planning Era

The October 2024 Budget announced the reversal of the pension's estate planning advantage. From April 2027 — now enacted in the Finance Act 2026 — unused pension pots will be brought within the scope of inheritance tax.

This is a fundamental shift. The planning implication — spend the pension first (or draw it down) while preserving other assets — is reversed. From 2027, the pension is an IHT liability; ISAs and other assets (subject to normal IHT reliefs) may become more attractive for estate planning purposes.

The death benefit change also affects beneficiaries. Previously, a beneficiary receiving an inherited pension could draw income from it entirely free of tax (for pre-75 deaths). From 2027, that income will be taxable in the beneficiary's hands. The elimination of this particular "double benefit" — IHT-free AND income-tax-free — was the specific target of the 2024 Budget reform.

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Pension Freedoms and Scams

A less discussed but important consequence of pension freedoms is the way they enlarged the attack surface for pension fraud. Before 2015, a fraudster who persuaded someone to transfer their pension to a bogus scheme faced a victim who would eventually discover the fraud when attempting to access a derisory income at retirement. After 2015, the fraudster's offer of "take the money now" became more plausible — people could legitimately access their pension at 55, which made the liberation fraud promise easier to execute.

The FCA and TPR's ScamSmart campaign — targeting pension freedoms fraud — was a direct response to the post-2015 surge in pension liberation schemes. Enhanced transfer safeguards (introduced in 2021) placed obligations on pension trustees to perform due diligence before allowing transfers that showed scam red flags.

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Pension Freedoms for UK Expats: The Access Question

For UK nationals resident overseas, pension freedoms apply equally — the minimum pension age of 55 (rising to 57) applies regardless of country of residence. The tax treatment of a drawdown withdrawal for a non-UK resident depends on the applicable DTA.

The practical challenge for expats is that some UK pension providers have restricted their services to UK-resident clients. An expat in Thailand or Malaysia may find their drawdown account is technically accessible but that the provider's terms require a UK bank account for the income payment, or that the provider requires a UK postal address for correspondence.

Before leaving the UK, it is advisable to confirm that your chosen pension provider will continue to provide full drawdown services to non-UK residents, and to understand the tax position on pension income in your country of intended residence.

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Lessons for Planning a Decade On

The evidence review suggests several lessons for individual pension planning:

1. Take guidance or advice before entering drawdown. The MaPS guidance service is free. For larger pots (£100,000+), regulated advice is worth the cost.

2. Review your drawdown investment strategy. If you are in drawdown and still in an accumulation fund, consider whether a drawdown-specific asset allocation is more appropriate.

3. Model your withdrawal rate. Is your planned withdrawal sustainable? A financial planner can run a stochastic model showing the probability of pot exhaustion at different withdrawal rates.

4. Reconsider the estate planning assumption. The April 2027 IHT change means the "preserve the pension at all costs" strategy is no longer optimal for many. Draw down earlier, spend efficiently, and plan for the new IHT landscape.

5. Avoid making irreversible decisions without advice. Drawdown decisions can be partially reversed (you can buy an annuity with part of the pot later), but some choices — particularly taking the full PCLS early — cannot be undone.

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How Global Investments Can Help

At Global Investments, we help clients navigate the post-pension-freedoms landscape — whether they are UK residents approaching retirement, expats managing UK pensions from overseas, or those planning for inheritance and estate efficiency in the context of the upcoming 2027 IHT changes.

Our team works with regulated drawdown specialists and tax advisers to provide comprehensive retirement income planning that goes beyond the mechanics of pension access to address long-term sustainability, tax efficiency, and family legacy objectives. Contact us to discuss your pension drawdown strategy.