Pension cash withdrawals fall during lockdown
Between March and June – typically the peak pension freedoms season – £2.28bn was flexibly withdrawn from pots.
This is a 17% decrease from the £2.8bn withdrawn in the same period last year, and a fall from £2.46bn in Q1 2020.
The latest figures from HMRC also reveal that the number of individuals accessing their pension pots flexibly has also fallen from Q1 to Q2 which it said was “contrary to normal seasonal patterns”.
Withdrawal numbers typically rise in Q1, before peaking in Q2, as this coincides with the beginning of a new tax year. But HMRC said this change in behaviour could be due to the impact of the Covid-19 pandemic.
In the three months to June, 340,000 individuals withdrew cash from pensions, down from 348,000.
However, when compared to the same period last year, the figures represent a 1% increase from 336,000.
The average amount withdrawn per person in Q2 2020 was £6,700, which is an 18% decline from £8,200 in Q2 2019.
Laura Stewart-Smith, workplace savings manager at Aviva said: “Contrary to the fears of some, this data shows there has been no “dash for cash” from pensions during lockdown.
“The average taxable withdrawal per individual fell to an all-time low and is the first time the average withdrawal has fallen below £7,000.
“There is also evidence that savers are holding back from accessing their pensions despite high levels of uncertainty. Q2 has always seen a sharp rise in withdrawals – until this year.
“For the first time since records began, Q2 2020 has reported a fall in the value of total withdrawals. This is encouraging news. Pension decisions made under duress are rarely good ones. Today’s data gives confidence that this message has been heard.”
Pension tax reclaims down
Separate statistics from HMRC also revealed 7,649 pension tax reclaim forms were processed in Q2 2020, down from 10,000 in the previous quarter and over 17,000 in the previous year.
An estimated £27m was repaid in overpaid tax applied to individuals accessing their pension cash but being charged an emergency rate of tax. This figure is down from almost £47m in Q2 last year.
However, the average per person reclaim hit a record high of £3,560 in Q2 – £845 higher than during the same period last year.
In total, the amount reclaimed by people overtaxed on pension freedoms withdrawals has now reached £627m.
Under HMRC rules, pension providers apply tax on a ‘month 1’ basis so the withdrawal is counted as if that amount of money will be taken every month for the next year, rather than as a one-off withdrawal.
The tax is therefore calculated based on a much higher annual withdrawal than savers actually take.
See YourMoney.com’s guide on How to reclaim pension over-tax for more information.
Tom Selby, senior analyst at AJ Bell, said: “Hard-working savers continue to be unfairly overtaxed for flexibly accessing their retirement pot.
“While people taking a regular income should have their tax position sorted out automatically, those making a single withdrawal will either have to fill out one of three official forms or wait for HMRC to put them right at the end of the tax year.
“We are over five years into the pension freedoms and HMRC’s approach to the taxation of withdrawals – which was never formally consulted on – still hasn’t been officially reviewed. This affects hundreds of thousands of people, with the obvious risk that those who fail to make a reclaim are left short of cash when they need it most.”