Retirement savers withdraw £17bn since dawn of pension freedoms
Since April 2015, anyone aged 55 and over has unfettered access to their pension savings, with the first 25% being tax-free while the remaining 75% is taxed at the holder’s marginal rate of income tax.
The latest quarterly statistics from HM Revenue & Customs (HMRC) has revealed 500,000 payments were made to 222,000 individuals. The total withdrawn stood at near £1.7bn in the first three months of 2018.
This represents the highest number of payments made to the largest number of individuals in any quarter since April 2015.
The average withdrawal stands at £7,644 which is slightly up on the previous three months. But Michael Martin, relationship manager at 7IM said the numbers are concerning because while the number of flexible payments has risen 26% between Q1 2017 and Q1 2018, the total value of payments has moved fairly modestly, by just 7%.
“This suggests that it is the smaller pension pots that are being harnessed the most. In other words, the gap between the pension ‘haves and have nots’ has just got even bigger, and arguably the number of people relying on inheritance or a windfall to fund later life just got bigger too.”
Tom Selby, senior analyst at AJ Bell, added: “Average withdrawals per quarter ticked up slightly but remain well below the levels seen in the first 12 months. While there are signs some people may be taking too much too soon from their retirement pots, there is no clear evidence this is a widespread problem.
“Indeed, many remain concerned that ‘reckless conservatism’ – where people take too little from their funds and struggle to make ends meet – could prove to be just as significant a problem.”
However, for Jon Greer, head of retirement policy at Old Mutual Wealth, the figures show people are beginning to grasp the power of pension freedoms.
“Since 2015 they are withdrawing significantly less per payment and increasing the frequency of the withdrawals. But there is still a vast knowledge gap surrounding pension freedoms and pensions in general.
“Both the regulator and the government are continuing to look hard at the delivery of pension freedoms to make sure consumer protection is as good as it can be. Boosting engagement and tackling the implications of non-advised drawdown are likely to be a key components of the regulator’s final report and the findings of its Retirement Outcomes Review, which is due imminently.”