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Pension withdrawals hit £25.6bn since freedoms began

More than £25bn has been withdrawn since the pension freedoms started in April 2015 according to the latest statistics issued by HM Revenue and Customs.

In total 284,000 people withdrew over £2bn from their pensions during the first quarter of 2019.

Average pension freedoms withdrawals per person were £7,254 in Q1 2019, a slight decrease from £7,644 a year ago but a significant decrease from £11,081 in Q1 2016.

A record 539,000 individuals received a payment in the last 12 months and taken out nearly £8.2bn over the same period.

The data from HMRC covers “flexible payments” from pensions, which include full or partial withdrawals, flexible drawdown and buying a flexible annuity.

AJ Bell senior analyst Tom Selby says: “All the available evidence suggests that, in the main, savers continue to use the pension freedoms sensibly and are managing withdrawals with sustainability right at the front of their minds.

“The number of people using the pension freedoms continues to increase as expected but importantly the trend in the average amount per withdrawal has been consistently on a downward trajectory over the four years since the new rules were introduced.”

While the amount withdrawn from pensions has climbed steadily since 2015, the amount the government spends on pensions tax relief has stabilised over the same period.

New figures also published today by HMRC put the gross cost of pension tax relief at £38.4 bn in 2017/18, up around £1bn on 2016/17, but still slightly lower than the £38.6bn figure for 2015/16.

Commenting on the figure Royal London director of policy Steve Webb says: “The Treasury needs to make up its mind whether it wants more people to save in a pension or not.

“What is remarkable is how little the cost of pension tax relief has risen in recent years given the millions of extra workers who have been automatically enrolled into workplace pensions.

“Every time the Treasury attempts to cut the cost of tax relief they add new complications such as the tapered annual allowance and the money purchase annual allowance which make the system bewilderingly complicated.

“These new figures provide no justification for further fiddling and salami slicing with a system that should be stable over the long-term”.

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. Steve Bee estimated around 2006 that there was £1,400 Billion in UK Pension I think. So, £25 billion in 4 years makes this headline a non story. If the funds had gone to annuity we would not even be looking at this figure. add to this the baby boomers retiring and it becomes even less startling.

  2. Maybe not “all the evidence”. FCA data shows that half of pots accessed for the first time are fully withdrawn. Of those who have put funds in drawdown and are taking regular income, 43% are withdrawing more than 8% a year and 22% are taking 6-8%. The smaller the pots, the higher the withdrawal rates.

    • I have a number of clients who fall within the categories you describe C Clarke, and yet they are all being responsible in terms of their withdrawals. How can this be?
      Well, I have a couple of clients who have fully withdrawn small pots or are doing so over 2/3 years, as the small fund size means there is no sense in annuitizing or consolidating with other pots, which will meet their long-term income needs in the future.
      I also have clients who are using up one of their DC pots over a period of several years, as their long-term income needs will then be met by a combination of State Pension plus either DB pension (in a couple of instances) or DC pension with GARs (in another couple of cases).
      Finally I have a couple of clients where one of the couple is exhausting a DC pot to fund their offspring through Uni, with the knowledge that their long-term income needs will be met once their partner retires and is eligible for their DB pension and they both reach SPA and receive State Pensions.
      The problem with trying to determine “detriment” from bare stats like this is that it pays no attention to individual client circumstances and objectives.

      • Hi Kevin. My point was to query whether “all the evidence” shows most people being sensible. Most DC pension access is one-off full withdrawal. Of the minority who do put funds into drawdown for income, 65% are taking more than 6% a year of which two-thirds are taking more than 8%. FCA figures include not just the few thousand richer people taking advice to live a little, but the tens of thousands of mass market drawdown customers with modest pensions and often without advice. Most won’t have separate DB to fall back on (only 7% of those aged 55+ and not retired have both DC and DB). Six in 10 DC pensions with GARS are not taken up. This is the whole picture, not just the prettiest part of it you want me to see.

  3. I’ll bet HMRC are quite happy. What they get from those splashing the cash probably makes up (and more) for what they are losing via AE.

    • Whilst there was a big jump in the amount of tax received from pension payments in 2015/16, part of this would have been due to the fact that people put off taking payments between George Osbourne’s announcement of Pension Freedoms and their implementation date.
      Since then, however, Harry, the amounts received by HMRC have increased from £17.7Bn in 15/16 to £17.9Bn & £18.4Bn, which could easily be explained by the increasing numbers of baby boomers retiring each year.
      Where HMRC are really gaining, however, Harry, is in the cost of tax relief on employee contributions. This has been static since 2012/13 despite the huge increase in AE contributions. The simple explanation is that the increase in AE employee contributions has been more than offset by reduced contributions by higher earners who have drastically reduced or ceased due to a combination of Lifetime Allowance, Annual Allowance, and Tapered Annual Allowance reductions!

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