£9bn cashed in from pension pots since dawn of freedoms
The latest statistics from HM Revenue & Customs reveal 162,000 individuals accessed £1.56bn from their pension pots in the last three months of 2016.
Pension freedom rules were introduced by former chancellor George Osborne and allow anyone over 55 total access to their pension pot.
Gareth James, pension expert at AJ Bell, said while it’s good to see pension freedoms are being utilised by a large number of people, it’s dangerous to use the £9.2bn as a measure of success.
He said: “It doesn’t tell us what people are doing with that money. Are they using it to provide a regular and sustainable income as pensions are designed to do, or are they spending it too quickly and likely to run out of money too quickly?
“It is important that the government carries out a more detailed analysis of how the pension freedoms are being used before any realistic assessment of their success can be made.”
‘Seek advice before taking action’
Sally Merritt, head of product at Saga Investment Services, said that while people typically withdraw small amounts – in the region of £6,000 – she urges caution when it comes to taking money from a pension pot without taking advice first.
“Not only does taking money from their pension mean that people need to plan for an alternative source of income in retirement, but it could also lead to people getting a nasty surprise on their income tax bill – especially if they take it all in one go, rather than in phases over multiple tax years.
“There’s also the perhaps lesser known issue of pensions now being a much more attractive way to pass on wealth to loved ones from an inheritance tax perspective than was previously the case. This means some people are finding it more tax efficient to release money from other sources before touching their pensions. Ultimately, with increased choice comes increased complexity, and we would urge people to seek advice before taking action.”