The number of people flexibly accessing their pension has risen over the past year, new data from HM Revenue & Customs has revealed. How many are aware of the long term consequences is unknown.
According to the findings, £12.9 billion in taxable payments was withdrawn from pensions flexibly in the 2022/23 tax year, compared to £11.2 billion in 2021/22 and £9.3 billion in 2020/21, amid the ongoing cost-of-living crisis.
The figures also showed a rise in the average value of withdrawals. After falling to £5,624 in the fourth quarter of 2022, the average withdrawal rose to £6,628 in the first quarter of 2023 and £7,143 in the second quarter of this year.
In total, the value of taxable payments withdrawn flexibly from pensions since the pension freedoms were introduced in 2015 has exceeded £72.2 billion.
Stephen Lowe, group communications director at Just Group, said: “We would expect to see the number and value of flexible payments from pensions increase as more people reach the age when they can access their pensions. But for the last two quarters we’ve also seen the value of the average withdrawal climb.
“This suggests we may now be seeing an acceleration in the amount being withdrawn as people grapple with the recent economic challenges. People may be looking to top up their income from their pension to support their standard of living.”
Jon Greer, head of retirement policy at Quilter, echoed the sentiment: “This may be down to increased energy bills and food prices soaring with pensioners feeling that they need more each month just to get by. While the state pension will rise with wage growth going forward and help offset some of the costs it will be far from enough for people to rely on.”
However, experts warned that many people may be unaware of the long-term consequences of taking more out of their pension.
Lowe said: “They may have plans to increase their savings in the future to make up for what they’ve withdrawn, but by triggering the MPAA they significantly limit the tax relief future pension savings will attract – making that saving much harder work.
“We really don’t know how many people understand the longer-term consequences of taking their first flexible payment. So, there’s one simple piece of advice for everybody considering dipping into their pension pot – either seek professional, regulated advice or take advantage of the free, independent and impartial pensions guidance from government-backed Pension Wise.”
