Pension freedoms withdrawals up sparking retirement decision concerns
9 May 2018
Pension savers are making the most of the pension freedoms, with over £17bn worth of payments being made since 2015, according to new figures published by HMRC, but concerns are raised around lack of understanding and the ability of consumers to make the best decisions regarding their retirement.
The data showed a continued upwards trend in the number of withdrawals, which reached half a million in the first three months of 2018. This compares to just 121,000 in the second quarter of 2015, directly following the introduction of the pension freedoms.
Andrew Tully, pensions technical director, Retirement Advantage, said: “The appetite to withdraw cash shows no signs of abating and a new norm is beginning to emerge. Significant sums continue to be withdrawn from pensions with many smaller pots being withdrawn fully. 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.”
Tully said the freedoms also have “generated a welcome windfall” for the Treasury, with the tax on withdrawals not proving to be “the natural brake” some had predicted.
He added: “We know people are accessing their pensions for the first time at younger ages, and certainly before they are due to retire. We also have seen from our recent research people are using the cash to make home improvements, go on holidays, pay off debts and also save money outside of the pension.”
According to Origo managing director Anthony Rafferty, the growing number of people taking advantage of the greater flexibility shows how “vitally important” it is that the industry help consumers engage with pensions, not just at the point at which they access their money, but “throughout the savings journey.”
For Rafferty, the pensions dashboard will prove a “fundamentally positive tool” for the market, helping people to both engage with their savings and achieve outcomes that are best suited to their individual needs.
Steven Cameron, pensions director at Aegon, echoed the sentiment, predicting that the number of people taking a more flexible approach to their retirement would continue to rise.
Cameron said: “While the pension freedoms have gone from strength to strength and allow retirees more options than ever before, it’s important for those at or nearing retirement to plan ahead and take financial advice, to invest appropriately and avoid running out of money.”
Going forward, the focus will be upon the FCA Retirement Outcomes Review, which will provide a verdict on the drawdown market amid concern that consumers may need more support and protection. The regulator has signaled that it is looking to assess whether additional protections should be put in place for consumers who opt for drawdown without seeking financial advice.
According to Tom Selby, senior analyst at AJ Bell, the review “is likely to pay particular attention to the sustainability of withdrawals and the extent to which people entering drawdown are engaging with their pension.”
He added: “Our own research suggests many savers lack knowledge about the decisions they are taking at retirement. This must now become the central focus for both policymakers and the wider retirement income sector.”
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