HM Revenue and Customs (HMRC) has released its latest figures on the number and value of flexible payments from pensions.
The latest data also marks the fifth anniversary of pension freedoms, which were brought in by then-chancellor George Osbourne, much to the surprise of the financial services sector.
In the five years since pension freedoms were introduced in April 2015, some 1.4 million over-55s have withdrawn a whopping £35.44bn ($44.1bn, €40.6bn).
The breakdown is:
- £9.81bn withdrawn in 2019/20;
- £8.18bn in 2018/19;
- £6.65bn in 2017/18;
- £6.45bn in 2016/17 and;
- £4.35bn in 2015/16.
Tread carefully
“There can be no question that the pension freedoms have been hugely popular, going by these latest numbers,” said Andrew Tully, technical director at Canada Life.
“People have been attracted by the ability to use their pensions like cash machines, but individuals need to tread carefully and be wary of triggering unintended consequences.”
Steven Cameron, pensions director at Aegon, said: “There is a big question over how the use of pension freedoms will be affected by the coronavirus crisis, both in terms of challenges to individuals’ financial positions and likely ongoing stock market volatility.
“Future data should help us gather a fuller picture of any changes in behaviours.”
Substantially more
The HMRC statistics also show 348,000 people withdrew £2.5bn in flexible payments from their pensions in the first quarter of 2020, up from £2.06bn in Q1 2019.
This brings total withdrawals for the 2019/20 tax year to £9.81bn, which is a record.
Looking at the last three months, the data shows a 23% increase in the number of people (348,000) withdrawing cash compared to the same period in 2019, which was 284,000 savers.
“It is normal to see an increase in the number of people withdrawing from their pensions in the first quarter of the year, as it edges toward the new tax year,” said Ian Browne, retirement expert at Quilter.
“However, even for normal trends, the increase is substantially more than we have seen in the past.”
Average withdrawals
HMRC’s data also found the average sum withdrawn per individual in Q1 2020 was £7,100, falling by 3% from £7,300 in Q1 2019.
Since reporting became mandatory in Q2 2016, average withdrawals have been falling steadily and consistently, with peaks in the second quarter of each year becoming a noticeable trend.
Helen Morrissey, pension specialist at Royal London, said: “The average amount withdrawn continues to drop, which demonstrates people are taking a more measured approach to drawing pension income rather than raiding the pension piggy bank at the first opportunity.”
