5m pension freedom withdrawals HMRC data shows
4 November 2018
Pension savers have withdrawn some £21.7 billion since the pension freedoms were introduced, as individuals continue to enjoy the flexibility afforded by the new rules.
Data published by HM Revenue & Customs showed nearly five million withdrawals have been made over the past three and a half years. During the third quarter of 2018 alone, 258,000 savers made 585,000 withdrawals, down slightly on the record 264,000 individuals accessing their pension during the second quarter.
According to the figures, withdrawals per person were £7,597 during the three months from July-September, back down to the lowest level since the pension freedoms were introduced.
Treated like a bank account
Andrew Tully, pensions technical director, Canada Life, commented: “Cash is king as the rush to withdraw money from pensions following the introduction of the freedoms shows no signs of abating. Typically smaller pensions are being fully withdrawn, while people with larger pensions are making multiple withdrawals in a tax year, suggesting they are treating their pension more like a bank account.”
He added: “This combination of taking multiple withdrawals in a tax year at earlier ages, when people are still likely to be earning income from work, means many people are likely to be paying more tax than if they took withdrawals more gradually. The Treasury is enjoying a tax bonanza, as predictions that paying income tax will be a natural brake on withdrawals hasn’t stopped people simply taking the money.”
The number of savers being hit with emergency tax bills was also on the rise, with separate figures published by HMRC showing a record £38 million reclaimed during the third quarter.
Tom Selby, senior analyst, AJ Bell, said: “The government recently upgraded its estimate for the tax take from pension freedoms withdrawal this year by a whopping £400m and now we can see why.
“One of the real thorns in the new rules is the tax treatment applied to people making their first pension freedoms withdrawal. In most cases an emergency tax rate will be applied to these withdrawals meaning people pay more tax than they should do. This can be reclaimed but it is a hassle and doesn’t help the fact that the withdrawal will be lower than the individual expected.”
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