You are here: Home - Retirement - Retirement planning - News -

£1.59bn withdrawn from pension pots in third quarter

Written by:
The latest HMRC data shows that demand for pension freedoms continues to grow, with 198,000 people making withdrawals totalling £1.59bn from their pension pots in the third quarter of 2017.

This is an increase on the same period last year, when 158,000 people withdrew £1.54bn, but a small decrease on the previous quarter when 200,000 people took out £1.86bn.

Research by AJ Bell found that demand for pension freedoms has been driven primarily by people wanting control over their retirement savings, with half the people questioned (52%) giving this as a reason for not purchasing an annuity. The low income available from annuities is also a major contributing factor for 30% of people.

Just over three quarters (78%) of people questioned said they felt in control of their retirement income, although almost half (46%) of respondents said they worry about running out of money.

There remain some basic misunderstandings. For example, over half (53%) of those questioned don’t know how their pension fund is invested and a quarter (26%) never review the amount they are withdrawing.

Tom Selby, senior analyst at AJ Bell, said: “UK pension savers clearly want more control over their retirement savings and the pension freedoms have been remarkably successful at delivering this. However, in return for this control they have taken on the investment and longevity risk that previously would have sat with annuity providers. This trend has significant long-term implications which we are yet to see play out.

“To control investment risk people need to have a clear investment strategy and yet over half don’t know how their pension fund is invested. To control longevity risk people need to have a realistic idea of how long they will be able to sustain their withdrawals for, yet a quarter of them never review the amount they are withdrawing…it is vital the government, regulators and the industry continue to monitor the progress of the pension freedoms and communicate with savers to give them a better understanding of retirement issues.”

Good decisions?

Rachel Vahey, product technical manager at Nucleus, said that while the stability of the amounts being withdrawn gives a sense of calm, the steady increase in the number of times people are dipping into their pension pots raises concerns: “This may lead to the risk many withdraw funds when they have no immediate need of them, unnecessarily paying tax, and investing them in bank accounts or ISAs. The challenge facing the government, regulators, financial advisers and the industry is to help people understand when and how to take their pension savings, and to make good financial decisions to maintain their financial health throughout retirement.”

Nathan Long, senior pension analyst at Hargreaves Lansdown, said: “The period following the pension freedoms has been one of rampant stock market returns, so many investors new to drawdown may never have fully experienced a drop in the value of their investments.

“For most people, having sufficient guaranteed income to cover the retirement essentials will be a sensible choice. State and final salary pensions are the obvious sources of secure income, but annuities are a useful top up. Annuity rates remain suppressed due to the prevailing low interest rates, yet have leapt by 16% since last September. You now get more for your money than a year ago, meaning now could be a great time to revisit your long-term retirement plans.”

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

The savings accounts paying the most interest

It’s time to get your finances in shape for summer, and moving your cash savings to a higher paying deal is ...

Everything you need to know about being furloughed

Few people had heard of ‘furlough’ before March 2020, but the coronavirus pandemic thrust the idea of bein...

The experts’ guide to sorting out your personal finances in 2021

From opting to ‘low spend’ months to imposing your own ‘cooling-off period’, industry experts reveal t...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week

Read previous post:
Do you check before you tap?

Around three-quarters of Brits have used contactless payments, but only 38% said they always check the amount before they pay.