Warning for working pensioners as record numbers withdraw cash from retirement pots
A total of 264,000 people withdrew a combined £2.3bn between April and June compared to the 222,000 who took out £1.7bn in the first three months of the year, according to statistics from HMRC.
But financial advice firm NFU Mutual said many people may not be aware of rules limiting the amount they can pay into their pension after they have started taking withdrawals.
Over-55s can withdraw up to 25% of their pot tax free but if they take out even £1 of taxable income they and their employer can only put up to £4,000 a year back in, rather than the usual £40,000 annual allowance.
Sean McCann, chartered financial planner at NFU Mutual, said this rule particularly affects people who are still working who could miss out on valuable employer contributions.
“If you are still getting employer contributions think carefully about taking any taxable income from your pension,” he said.
“Think what you are going to do with the cash if you do withdraw it. It would be crazy to put it in the building society as that exposes it to income and potentially inheritance tax, as well as triggering the £4,000 rule.”
‘Withdrawals are not out of control’
Almost £20bn has now been withdrawn since the freedoms – allowing anyone over the age of 55 full access to their pension pot – were launched in April 2015.
The figures suggest savers are being sensible with the amounts they are taking out of their pension, with the average withdrawal standing at £8,595.
Tom Selby, senior analyst at retirement firm AJ Bell, said: “The good news is average withdrawals per person are not spiralling out of control. In fact, while the average withdrawal is almost £1,000 higher than in quarter one 2018, it is down by about £700 on the same quarter in 2017.”
Steve Webb, director of policy at Royal London, said: “These figures show the continuing popularity of pension freedoms. The key challenge is to make sure that more people take advice and guidance when deciding how to access their pension savings so that they do so in a sustainable way that meets their objectives.”