According to the data, most people used the pension freedom rules to provide an ongoing and sustainable income in retirement via partial withdrawals or income drawdown – with the average partial withdrawal made by AJ Bell’s customers representing just 1.86% of their overall fund value.
No Lamborghinis
The figures pay no heed to initial warnings that freedoms allowing people unrestricted access to their pension savings, which were introduced by the chancellor George Osborne in April last year, would lead to pensioners withdrawing large amounts of cash for frivolous purchases such as a Lamborghini.
In fact, data from AJ Bell shows that only 1% of all withdrawals made in the last year were full withdrawals – with the majority of those being less than £30,000 in value.
Billy Mackay, marketing director at AJ Bell, said: “The stampede for the exit door to fund frivolous purchases following pension freedoms has not materialised.
“The sports car driving pensioner was a nice image but the reality of tax charges on large withdrawals has kept people’s feet on the ground.
“Our experience has been that people are using the new flexibility to produce a steady, tax efficient income stream in the form of partial withdrawals where they don’t want their hands tied by an annuity.”
Death benefit rules
AJ Bell also revealed that since the pension freedoms came into effect, it has seen a significant uptake of more flexible death benefit rules – with 42% of beneficiaries that have pension death benefits opting to keep inherited funds in a pension and use the new flexible income drawdown rules.
Mackay said: “It is also apparent that people are utilising the new death benefit rules to keep inherited pensions in drawdown which enables them to pass any residual funds down through the generations upon second and subsequent deaths.”
