Sensible retirees are using pension pots wisely
The statistics show that £12.7bn has been withdrawn from pensions flexibly since April 2015. After an early burst, the average withdrawals per person has dipped. It now sits at £9,300, compared with £11,132 in the second quarter of 2016.
Equally, the average number of payments per person is up from 1.86 to 1.97, suggesting more people are making regular withdrawals from their pension pot, rather than taking cash lump sums.
Tom Selby, senior analyst at AJ Bell, said: “Based on this data we’ve seen, it is getting to a stage where things are levelling off. People are using the freedoms in a sensible way and thinking about how they can make their payments last a long time rather than taking it all out in one go.”
He added that there had been an initial spike in withdrawals, reflecting pent-up demand between pension freedoms being announced and coming into effect. This created a bottleneck. He said data in the early years was also limited as reporting had not yet become mandatory.
These figures do not say what is being done with the payments once they are withdrawn. In its recent Retirement Outcomes Review, the Financial Conduct Authority found that accessing pots had become the ‘new norm’, with over half of pots being fully withdrawn. The Review also didn’t find any evidence of retirees squandering their pension with most consumers who withdrew their savings having other sources of income in addition to the state pension.
However, Selby said there remains a need for more information. He added: “We still need much clearer data on the sustainability of withdrawals from pension funds. We need more granular detail. The FCA is starting on that analysis now, but in the meantime, we don’t have a full picture.”