Pension savers withdrew a record amount from their pension pots in 2019, as the appeal of the pension freedoms showed no signs of slowing down.
Figures published by HM Revenue & Customs showed 327,000 people withdrew £2.2 billion in flexible payments from their pensions in the last quarter of 2019, taking the total withdrawals for the year to £9.4 billion.
It marked a steep increase on the £7.8 billion withdrawn in 2018, £6.5 billion in 2017 and £5.7 billion in 2016.
Yet, this figure does not reflect the complete picture as it omits small pots and other payments.
The final quarter of 2019 saw a 24% jump in the number of people withdrawing cash compared to the same period of 2018 and an 18% increase in the value of payments, the data revealed.
In total, people have flexibly withdrawn close to £33 billion from their pensions since the freedoms were introduced in April 2015.
Andrew Tully, technical director, Canada Life, said: “Treating your pension like a bank account shows no signs of abating. Withdrawing cash can trigger unintended consequences, for example limiting the amount you can subsequently save into a pension. This can be very restrictive for people who are still working as HMRC restricts subsequent tax efficient savings to a very low £4,000 a year.
“Inevitably the significant amounts of cash leaving the pension system will in many cases be triggering large and often unexpected tax bills. But these tax bills don’t appear to be the natural brake on behaviour many predicated when the rules were changed. If anything, people are seeking to strip cash from their pensions as rapidly as possible for fear of subsequent rule changes. The genie is well and truly out of the bottle.”
Steven Cameron, pensions director, Aegon, commented: “Even in times of uncertainty as we’ve seen in recent months ahead of Brexit, there appears to be no resurgence of desire for the guaranteed income on offer from annuities. This may not be surprising though with interest rates continuing to languish at rock bottom levels, making the amount paid out from annuities look particularly unappealing.
He added: “With people living longer, proper retirement planning is needed to safeguard people’s wealth, particularly if choosing to use flexible drawdown in retirement. Here, retirees remain invested in the stockmarket raising concerns over the impact a major fall could have on their retirement prospects including the risk of running out of money if they withdraw too much too soon.”
But while the average number of payments taken per quarter has increased to its highest level since 2015, the average amount withdrawn per person in the final three months of 2019 was £6,800, down 5% from £7,200 taken in the fourth quarter of 2018.
Stephen Lowe, group communications director, Just Group, commented: “A trend to smaller payments taken more regularly is positive. What these figures don’t capture is the scale of pension withdrawals that aren’t flexible withdrawals, such as people taking pension money under small pot rules or those taking tax free cash and move the rest into drawdown with taking any income.
“Five years on from pension freedom and we still only have pieces of the jigsaw and not the complete picture of how people are using pension freedom – who it may be benefitting and who could be losing out.”