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HMRC figures show pension savers adopting more careful approach to fund withdrawal

7 May 2019

Tougher market conditions are prompting pension savers to be more careful with their pension withdrawals, the latest figures from HM Revenue & Customs have suggested. 

While a record number of people accessed their pensions flexibly during the 2018/19 tax year, the average amount withdrawn has fallen year-on-year since the pension freedoms were introduced in 2015.

In total, 284,000 people withdrew over £2 billion from their pensions during the first quarter of 2019, making the average withdrawal per person £7,254. This marked a slight decrease from £7,644 a year ago and a significant drop from the£11,081 recorded in the first three months of 2016.

Tom Selby, senior analyst at AJ Bell, said the evidence pointed to savers using the pension freedoms “sensibly”, with sustainability of their funds at the forefront of their mind amid tough market conditions.

He said: “The number of people using the pension freedoms continues to increase as expected but importantly the trend in the average amount per withdrawal has been consistently on a downward trajectory over the four years since the new rules were introduced.”

Selby said the first four years of the new rules had also been something of a “golden period” for investors, with the FTSE faring well and the most popular funds and trusts selected by AJ Bell drawdown investors performing admirably during the period. However, he warned that savers entering drawdown today should not expect the same performance.

He continued: “It would be optimistic to say the least to expect the stellar performance enjoyed in the first three years of the freedoms to be repeated. Investing in the stock market remains a get rich slow scheme and patience is required to reap the rewards of long-term growth. This is why it is so important for people keeping their money invested in retirement to review their funds and withdrawal strategy regularly and be prepared to reduce income payments where necessary.”

Steven Cameron, pensions director at Aegon, said the decrease in the average withdrawal amount was positive for the pensions market.

“This is encouraging as with greater flexibility comes greater responsibility and the freedoms have also introduced an increased risk. Historically, retirees would receive a fixed income which would last them for the rest of their life, but now many are responsible for investing appropriately and ensuring they do not overspend, risking their pension pot running dry part-way through retirement.”

Andrew Tully, technical director at Canada Life, echoed the need for savers to be careful with their new found responsibility.

He commented: “Our research suggests only a third of people seek advice before flexibly accessing their pension. This can leave consumers exposed to a new set of risks including paying too much tax or leaving the money languishing in low or near zero paying deposit accounts. Pension freedoms transferred all of the risks around retirement on to the consumer and with that comes much greater responsibility”

He added: “The risk of running out of money is very real, as there are no mechanisms to prevent people depleting their pots too quickly. Conversely, there is also the risk that people don’t spend enough in retirement for fear of running out of money.”


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