From April 2023 to March 2024, 885,455 people made their first dip into their pension pot, compared to 739,652 in the period before.
This added up to a total of £52bn withdrawn from pension pots by savers, which is a 20% rise on the previous year, according to the Financial Conduct Authority’s (FCA’s) retirement income data.
As it stands, when you reach 55 years old, you can take a 25% tax-free lump sum out of your pension.
This increase is thanks to “three years of spiking prices and rising interest rates”, which have had a “huge impact on Brits’ retirement plans”, Tom Selby, director of public policy at AJ Bell, said.
However, he predicted that with decreasing inflation and interest rates, a lower number of savers will head to their pensions for financial relief.
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Rises continued in the sales of annuities too, with 38% more being sold in 2023/24 than the year before. A total of 82,061 savers opted to select the guaranteed income for life, which had higher rates in 2023 than it had done for 20 years.
Indeed, since 2022, the value for private pension holders has grown by 50%. The popularity of the annuities accelerated due to rising interest rates following the mammoth spell of 14 consecutive base rate rises by the Bank of England, reaching a peak of 5.25%.
The Monetary Policy Committee (MPC) finally voted to drop it to 5% – where it remained in its last base rate decision in September.
Drawbacks to drawdowns?
Another increase in pension activity was in drawdowns, which rose by 27.9% to 278,977, making this the most popular way for people to access their funds.
Drawdowns allow you to benefit from the cash in your pension pot, while keeping money in a pension as a means of having a regular income.
On drawdown popularity rising, Selby said: “It is crucial anyone entering drawdown has a clear plan for making their pension last, which means you need to regularly review your retirement strategy and withdrawals to make sure they remain sustainable.
“If you aren’t sure how to go about this, it’s worth considering employing a regulated adviser to help you navigate what can be complex choices.”
Selby added: “It is also important to remember that you can mix and match annuities and drawdown to suit your needs. For example, you could choose to purchase an annuity to cover your fixed costs, retaining flexibility and the possibility of enjoying long-term growth with the rest of your pot.
“Equally, you could opt for drawdown in the early years of retirement, then convert your pot into an annuity later on, when you should get a better rate. The key is to focus on your long-term retirement goals and take an approach aligned to those goals.”
‘Crucial not to let speculation drive hasty decisions’
With a “painful” Budget potentially on the cards in October, Myron Jobson, personal finance analyst at Interactive Investor, warned those with a pension not to make any rash decisions.
Jobson said: “With the swirling rumours of changes to the UK pension regime, it’s understandable that many might feel a bit jittery about the future of their retirement savings. However, it’s crucial not to let speculation drive hasty and irreversible decisions when it comes to your pension.
“Pensions are inherently long-term investments, and their benefits, like tax relief on contributions and potential employer matches, are designed to grow over time. Knee-jerk reactions to unverified rumours can lead to costly mistakes, such as unnecessary charges or missed growth opportunities.”
Meanwhile, fewer savers accessed their pension for the first time with regulated advice in 2023/24, down to 30.9% from 32.9% in a year.
Jobson recommended doing so before making any decisions about taking a lump sum “to help you understand the long-term implications for your retirement planning”.
