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Pension freedom withdrawals continue slowdown

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The value of pension freedom withdrawals is slowing down, according to the latest data from HM Revenue and Customs.

Savers withdrew £1.5bn from their pots in the third quarter of 2016, compared to £1.8bn in the second quarter.

Though the number of individual payments out increased from 296,000 to 324,000, fewer people accessed their pots; 158,000 in the third quarter compared with 159,000 the quarter before.

The average withdrawal per person has now fallen to just under £10,000 and has been in steady decline since the quarter immediately following pensions freedoms, when average withdrawals were around £19,000.

AJ Bell senior analyst Tom Selby says: “It is interesting that the average withdrawal per person has gradually reduced since the launch of the freedoms, suggesting the initial dash for cash has tailed off and people are becoming more realistic about a sensible withdrawal level over time.

“However, an average withdrawal rate of £10,000 per person in a quarter still feels high in relation to the average pension fund size of around £40,000 in the UK.  This shows the limitations of this data.  To get a full picture of how successful the pension freedoms are it would be good to see what these withdrawals are being used for and to have some sense of how much people have remaining invested in pensions.”

Just Retirement group communications director Stephen Lowe warned that even those withdrawing lower value funds should still seek advice or guidance because of the tax implications.

Lowe says: “It appears we have reached a steady level of people exercising their pension freedoms to take on average £10,000 out of their pension pots. That is enough to push someone on basic state pension into the next tax band, and almost certainly is for those who are still working. The risk of triggering an unexpected tax bill, of being faced with complex product choices and of being subjected to increasing scamming activity requires people to get more help.”



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There are 3 comments at the moment, we would love to hear your opinion too.

  1. “slowdown”? The number of pay-outs increased and the number of individuals did not change significantly. I wonder how HMRC define “pension freedom withdrawals”. Does it include someone taking tax-free cash only? Does it include those taking withdrawals from existing drawdown policies, or is it only those using drawdown/UFPLS for the first time?

  2. When one considers that more than 30% of the population have savings of £100 or less, £10,000 is a hugely significant amount.

    The average pot is somewhare around £40k so within a couple of years many will have nothing left. Then what? Oh yes. The rest of us pay as they will be on benefits. So the Treasury snached a few quid earlier than otherwise and then takes four steps back when the lolly runs out. Great planning!

  3. I asked HMRC for clarification about these figures. They confirm that “pension freedom withdrawals” includes “partial or full withdrawal from a defined contribution pension scheme, taking money from a flexible drawdown account, or buying a flexible annuity. The statistics do not include tax free lump sums taken from these”. They also confirmed that the figures do not include pots cashed in under the small pot rules. (I would assume that the majority of pots <£10k are cashed in under the small pot rules rather than as UFPLS.)

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