A record £1.86bn was withdrawn from pensions during Q2 of 2017, latest HMRC statistics have revealed.1
200,000 people withdrew funds from their pensions over the period, the highest number of individuals making withdrawals in a quarter since records began. Q2 has also seen the highest number of payments at 393,000 in three months.
Since April 2015 when pension freedoms were introduced, individuals over 55 have been able to flexibly access their pension funds. The number of people choosing to do so has been steadily increasing ever since, with more than £10bn withdrawn so far.
However, while the amount withdrawn overall is still on the rise, the average withdrawal is trending downwards with people drawing down smaller sums. The number of withdrawals made per person has marginally increased, indicating that people may be taking smaller, regular payments more commonly than lump sums.
Advisory bodies continue to warn of the potential dangers of pension freedoms, in that people may withdraw so much that their pension pot is significantly depleted by the time they come to retire. This is a particular point of concern in light of increases in life expectancy and the general cost of living. There’s also the tax consideration; there are concerns that savers may withdraw money without being fully aware of the tax implications.
“Giving people the choice over flexibly accessing their money is majorly positive but only if they’re able to understand the long term outcome of that choice,” said Steve Watson, Commercial Director. “This is a big part of the reason that we developed our financial planning platform moneygym. Because people can model drawdown they can see the potential tax liability and the likely impact on their overall retirement income.”
“Certainly we’ve found that when we’ve done workshops for employees of our clients using moneygym, they’ve often reconsidered this decision, if not changed their mind about early access to funds, once they realised how much tax they might pay and how it would impact them in the future.”
The FCA reported that early access to pension pots has become “the new norm”2, but commentators say it’s too early to know whether this is a sustainable or sensible pattern.