“This shows the pensions reforms are still proving to be popular with over £12.67bn paid out so far since April 2015. Although this quarter’s is the highest payment yet, the HMRC figures show more and more people are taking advantage of the pension flexibility.
“However, the average payment per individual remains lower than last year, and is a continuation of the trend witnessed since the reforms were introduced,” Vahey added.
Doesn’t signal empty pension pots
The record number of individuals and total value of money withdrawn under the pension freedoms “does not mean that increasing numbers of over-55s are rushing to empty their pension pots”, said David Robbins, senior consultant at Willis Towers Watson.
“If you had a steady stream of people accessing their pot for the first time, a growing pool of pensioners making gradual withdrawals would push up the total over time. It’s possible that the number has been swelled further by the recent surge in transfers from defined benefit schemes. If so, it looks as though huge transfer values are not typically being cashed out in a hurry: the average payment per individual is lower than it was this time last year.”
He added that the £1.86bn excludes the tax-free 25% allowance and “you can’t simply add this on because some people will take their tax-free cash first and taxable payments later”.
“It will also include payments to some people who were in drawdown before pension freedom and who may not be taking out any more than they already were,” Robbins said.
Staying sensible
The data presented by the government is evidence that people are accessing their retirement pot in a sensible way, “rather than ravaging their savings to splurge on fast cars”, said Tom Selby, senior analyst at AJ Bell.
“Average withdrawals per person have dropped year-on-year from £11,132 in 2Q16 to £9,300 in 2Q17, as the pension freedoms begin to settle following an initial surge in activity.
“The average number of payments per person has also crept up year-on-year, from 1.86 to 1.92, as savers increasingly set up regular income payments from their pension rather than taking single ad-hoc lump sums.
“While the evidence so far is encouraging, the FCA will need to keep a close eye on the market to ensure consumers continue to manage their withdrawals in a sensible, sustainable manner.”
Regular income
Boal & Co’s Batty says that the data is difficult to fully interpret but suggests that “the majority of people are using pension freedoms have either small pension funds or are using the freedoms to product a regular income, which is to be expected with the high initial tax due on fully encashing larger pension funds”.
