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Hargreaves predicts drawdown spike before tax year end

Hargreaves Lansdown says that self-directed drawdown investors are likely to take out 28 per cent more in pension cash this month – and 40 per cent more in April – as the end of the tax year approaches.

Fifteen per cent of all pension cash outs occur in March, Hargreaves estimates, after an analysis of the withdrawals trends of DIY drawdown customers.

The data, based on over 12,000 withdrawals from Hargreaves investors, shows the spike in March and April comes after a Christmas period where more people tend to withdraw to cover the cost of the season, but withdraw smaller amounts.

The firm says the data indicates that many DIY investors are thinking through tax consequences and not acting recklessly with their pension funds as many feared before the pension freedoms.

Hargreaves senior analyst Nathan Long says:  “Despite the pension freedoms being introduced at breakneck speed, there’s mounting evidence most pensions savers  are managing their money sensibly and are actively minimising their tax liabilities.

Rather than pulling money out irrespective of timing and tax implications, it seems many DIY pension savers are actually carefully managing their income according to their tax allowances. The FCA and the government are introducing valuable measures to further simplify the process of navigating retirement but in the meantime this is welcome evidence many people are perfectly able to manage their own affairs.

“Drawing from your pension investments is a riskier business than buying the guaranteed income of an annuity. Aim to hold at least one years’ worth of income as cash if you are using drawdown so you are not forced into selling your pension investments at a low point if the market falls.’

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