The data from HM Revenue and Customs (HMRC) shows a massive 115% quarter-on-quarter increase in the numbers of people taking cash lump sums out of their pensions, with 159,000 people withdrawing a total of £1.77bn (€2.11bn, $2.32bn) via 256,000 payments, compared to 74,000 people taking out just £820m the previous quarter.
This also compares starkly with the last quarter of 2015 when just £800m was paid out to 67,000 people via 123,000 payments.
Overall, more than £6bn has been paid out of UK pensions since the reforms came into effect in April last year.
The research, which covers April 2015 to May 2016, found that a total of 391,000 people accessed their pensions via 772,000 flexible cash lump sum payments, taking out a combined £6.12bn.
“Ultimately the purpose of a pension is to provide an income throughout retirement, so any spike in cash-outs would be concerning."
Pension reforms giving people unrestricted access to their pension savings were announced by former UK chancellor George Osborne in April 2014 and came into effect in April last year.
Simon Kirby, economic secretary to the Treasury, said: “It’s only right that people should have a choice over what they do with their money and today’s figures show that pension freedoms continue to be a popular choice.
“Our pension reforms have already given hundreds of thousands of people access and responsibility over their hard-earned savings and we will continue to make sure that the pension freedoms work well for everyone.”
‘First real picture’
Meanwhile, Tom Selby, a senior analyst at online investment platform provider AJ Bell, said the data provides the “first real picture” of the impact of the pension freedoms.
“The key measure of success is not the fact £6bn has been accessed, however – it is how the freedoms are utilised. Early data from the FCA suggests the majority of people are using the freedoms sensibly rather than blowing their pension on luxury holidays and sports cars,” he said.
Selby urged policymakers to remain “vigilant to the risk people withdraw too much too quickly”.
“Ultimately the purpose of a pension is to provide an income throughout retirement, so any spike in cash-outs would be concerning,” he added.
Annuity concerns
The news comes as the UK Treasury predicts that nearly 40,000 or 10% of people who sell their annuity on the UK’s upcoming secondary annuity market will be on state-funded benefits.
The secondary annuity market, due to come into place April 2017, allows retirees who have already bought an income for life the chance to sell it for a cash lump sum.
It was unveiled as part of the former chancellor Osborne’s sweeping pension freedoms, which abolished the need for pensioners to buy an annuity.
The Treasury expects 37,500 people who currently claim means tested benefits – state-funded social payments those on a low income – to sell their annuity in the first three years of secondary annuity market being implemented.
This figures makes up 10% of the 300,000 people the UK tax office predicts will sell their annuity.
