Q2 2018 saw highest level of pension withdrawals
8 August 2018
The second quarter of 2018 has seen the number of pension withdrawals rise to its highest level since the pension freedoms were introduced in April 2015.
Over the course of three months, 574,000 payments were made to 264,000 individuals, taking total withdrawals for the quarter to a record £2.2 billion. Since the introduction of the pension freedoms, 3.7 million withdrawals have been made by 1 million people, totaling £17.45 billion, according to data released by HM Revenue & Customs.
Andrew Tully, pensions technical director, Retirement Advantage, commented: “A new norm has emerged for people to take cash, often with smaller pots being withdrawn fully. Many people are also making multiple withdrawals in a tax year, which suggests they are treating their pension more like a bank account. Most people are accessing their pensions at younger ages, certainly before state pension age.”
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 are likely to pay more tax than if they took withdrawals more gradually. Treating pensions like bank accounts has certainly generated a welcome windfall for the Treasury due to the extra tax take, which hasn’t been the natural brake some predicted.”
Tom Selby, senior analyst at AJ Bell, said the data showed that the popularity of the pension freedoms shows no signs of slowing, but whether the extent of withdrawals is sustainable remains to be seen.
He said: “The money involved is truly staggering and the changes are likely to have given a short-term boost to the UK economy, with many over 55s choosing to spend more money today rather than leave it invested in their retirement fund. The good news is average withdrawals per person are not spiralling out of control.
“It’s hard to tell to tell the extent to which such withdrawals are sustainable without a broader picture of individuals’ finances. Many will have seen the value of their drawdown pot boosted by the stockmarket bull run – the real test of the reforms will come when markets inevitably hit the skids.”
Recent research by Retirement Advantage suggested that people are using the cash to make home improvements, go on holidays, pay off debts and save money outside of the pension wrapper.
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