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07 Feb 2018

Pension freedom withdrawals up in 2017

Growing numbers of savers are taking cash from their pensions using the pension freedom rules.

Since April 2015, pension savers aged 55 and over have been able to access their defined contribution pension savings as they wish, subject to their marginal rate of income tax.

HMRC´s latest update on flexible payments from pensions shows that a total of £6.54bn was withdrawn through the pension freedoms last year, up from the £5.69bn withdrawn in 2016.

Approximately 772,000 individuals withdrew cash from their pensions, an increase from 553,000 a year earlier.

Andrew Tully, pensions technical director at Retirement Advantage, highlighted the emerging trend of pension pots being withdrawn fully, but said there is insufficient information to explain why.

“It could be that people are reacting to uncertainties in the economic environment, or are simply worried about the legislative goalposts changing again, or they might just want their money,” he said.

“The freedoms have certainly generated a welcome windfall for the Treasury but it´s clear tax has not been the natural brake to prevent people withdrawing large sums before retirement.

“We know people are accessing their pensions for the first time at younger ages, certainly before they are due to retire. And from our research we know they are spending the cash on making home improvements, going on holidays, paying off debts and also saving the money outside of the pension.”

Steve Webb, director of policy at Royal London, quoted by Money Observer, said the figures suggest that a significant number of people at or in retirement value the flexibility given by the pension freedoms.

“However,” he added, “it remains important that individuals take expert advice to make sure that the withdrawals from their pension fund are sustainable in the long term.”

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