There was a 7% increase in the number of flexible payments made from UK pensions during the fourth quarter of 2018, compared with Q3.
A total of £1.9bn ($2.5bn, €2.2bn) was withdrawn by 264,000 individuals. This equates to an average payment of £7,597, the lowest level since the pension freedoms were introduced in April 2015.
“Although it is too early to draw firm conclusions about why this has happened, it could be a sign of people showing restraint in how they spend their hard-earned retirements pots,” said Tom Selby, senior analyst at AJ Bell.
“Millions of savers in drawdown have faced torrid markets during 2018, with the FTSE 100 down 12% and most funds delivering negative investment returns. In these circumstances it can be sensible to cut back withdrawals in order to ensure you don’t run out of money during retirement.
“The past 12 months will have been particularly difficult for anyone who entered drawdown for the first time – especially if they took large income withdrawals just as markets hit the skids.
“Anyone in this situation has an uphill task to recover the losses they have made, and will be praying for a better year for their investments in 2019,” Selby added.
Fraudsters still waiting in the wings
Alex Waite, partner at pensions consultants LCP, said that accessing the pension freedoms can be the right decision for certain individuals but warned that it may not suit everyone.
“2018 was yet another record year for the number of transfers. However, at the same time, we are seeing many people having their freedoms capitalised on by fraudsters, which remains a huge concern for the pensions industry.
“The recently introduced ban on telephone cold calling from the UK is a helpful start, but the scammers have moved online and overseas and more is needed to protect vulnerable people reaching retirement.”
Toxic trend
The managing director of retirement specialists Responsible Life, however, issued a starker warning.
“The number of pensioners who felt they needed to dip into pension pots grew by a third last quarter, year on year. This is an incredible rate of growth given that flexible payments are nothing new and many will be storing up trouble for the future,” said Steve Wilkie.
“That means that, rather than being able to point to greater awareness among the over-55s as the cause of this rise, it is a potentially toxic trend that indicates a certain amount of financial distress in the retiree market.
“Early drawdown can have significant implications for income further down the line and, unless pensions are particularly wealthy, using the flexible payment facility should be considered very carefully.”
