Brits withdraw more than £30bn from pensions in four years
HMRC figures published today show savers have withdrawn £30.7bn since the dramatic shake-up of pension rules in April 2015, which allow anyone 55 and over to withdraw as much of their pension savings as they wish, removing the requirement to buy an annuity.
According to the latest data, 327,000 people withdrew money from their pension between July and September, a 27 per cent increase from the 258,000 in the same period a year earlier.
However, the average amount taken out per individual fell by 5 per cent from £7,600 to £7,250.
Nathan Long, senior analyst at Hargreaves Lansdown, said the figures are evidence that savers are “sensibly managing their money into retirement”.
Savers also appear to be phasing their withdrawals to minimise the amount of tax they have to pay, with withdrawals peaking after the start of the new tax year.
Steve Webb, director of policy at Royal London said: “People are being savvy about the timing of their withdrawals, spreading them over more than one tax year to reduce their overall tax bill. But it remains the case that we need to increase the proportion of people who take financial advice or guidance before making decisions about how much of their pension to withdraw.”
Experts say seeking advice can prevent savers being hit with an unexpectedly large tax bill, running out of money in retirement or limiting the amount they can save into a pension in the future.
Savers can put £40,000 a year tax free into a private pension but this limit plummets to £4,000 once they’ve started withdrawing money from their pension under a rule called the money purchase annual allowance (MPAA),
Tom Selby, senior analyst at AJ Bell, said: “The taxation of pension freedoms withdrawals is a confusing mess which can leave people facing shock emergency tax bills running into thousands of pounds, while the money purchase annual allowance (MPAA) is a brutal punishment for those who take taxable income from their fund.”
Mark Futcher, head of workplace wealth at Barnett Waddingham, said: “Caution is crucial; long term saving needs to be strategic, and a lack of planning and advice could lead to retirees finding themselves exposed to too much investment risk, or running out of cash too quickly in retirement.”