The data, which reports on pension payments made from the April 2015 until September 2016, shows that £7.66bn has been paid out in 1.1 million cash lump sum payments taken out by 623,000 pensioners.
Smaller lump sums
Despite the easy access to pensions following a relaxation of rules in April last year, the tax office figures show that a greater number of people are actually taking out smaller amounts of cash.
The average withdrawal per person fallen to less than £10,000
The £1.54bn paid out of pensions for the third quarter of 2016 is lower than the £1.77bn recorded the previous quarter but involved a greater number of payments, 324,000 compared to 296,000 – suggesting that rising number of retirees are cashing in smaller pensions.
Furthermore, the number of individuals taking money out of their pension pots has remained steady at around 158,000 on a quarter-on-quarter basis.
‘Default option’
Tom Selby, senior analyst at online platform provider AJ Bell, said the data shows that flexible withdrawals are now becoming the “default option” for income in retirement.
“It is interesting that the average withdrawal per person has gradually reduced since the launch of the freedoms (see chart below), suggesting the initial dash for cash has tailed off and people are becoming more realistic about a sensible withdrawal level over time.
“However, an average withdrawal rate of £10,000 per person in a quarter still feels high in relation to the average pension fund size of around £40,000 in the UK. This shows the limitations of this data.
More data
Selby urged the HMRC to disclose data on what the withdrawals are used for, arguing that give a “full picture” of just how successful the freedoms have been.
“It would be good to see what these withdrawals are being used for and to have some sense of how much people have remaining invested in pensions.
“The pension freedom reforms were designed to both boost flexibility and make pensions more attractive. At the moment the barometer of success seems to be focused purely on withdrawal rates, whereas the real success will be whether people are saving more,” he said.
Running out of money
Steven Cameron, pensions director at Aegon, said the greater number of people making withdrawals from their pensions means they could risk running out of money to fund their retirement.
“There is a risk those drawing too heavily on their retirement pots could run out of money. Our own research showed that this is already a concern for people, with three in four (76%) people aged between 65-74 expressing worry about running out of money in retirement.
