£3.35bn emptied from pensions under ‘small pot’ rules since April 2015

More than £3.35bn has been emptied from pensions by UK savers since April 2015 under ‘small pot lump sum’ rules, new figures from HMRC have revealed.

A freedom of information request to HMRC revealed that pension savings worth less than £10,000 have been taken by 785,000 people between April 2015 – when pension ‘freedom and choice’ reforms came into force – and June 2019, at an average of £4,274 per person.

Withdrawals under the ‘small pot’ rules allow pensions worth less than £10,000 to be totally emptied from the age of 55, with 25% of the withdrawn amount tax-free. Such transactions are not deemed to be ‘flexible payments,’ so the latest numbers are an addition to the figures HMRC published yesterday, which revealed £30bn has been withdrawn ‘flexibly’ from pensions since April 2015.

Group communications director at Just Group, Stephen Lowe, commented: “This is the first time that HMRC has revealed the significant scale of withdrawals from small pension pots.

“Generally, people in the UK are ‘under-pensioned,’ in that they don’t have enough savings to provide the standard of living they aspire to in retirement so taking any pension money early is only likely to make life harder later.

“People should think carefully before cashing in their pension pot. It’s appealing to have cash in hand and perhaps people consider small pots as inconsequential, so they feel it is a decision they can make themselves and are less likely to seek professional advice.”

The new HMRC figures showed that in 2018-19, £585m was taken in 179,000 payments from personal pensions, at an average withdrawal of £3,268. Furthermore, £205m was taken in 103,000 payments from occupational pensions, at an average of £1,990 per person.

Overall, 219,000 people took one payment or more in 2018-19 – valued at a total £790m, or an average of £3,607 per person.

“Policy makers are relatively blind to how the freedoms granted will play out when people reach their later life. It’s a bit of a roulette wheel,” Lowe added.

“It’s likely that flexible access to pensions will be good for some people but not so good for others who either take too much too soon, or too little too late.

“Without a more comprehensive understanding of what choices people are making with their pensions and other savings, we are flying blind which ultimately could put the whole future of the ‘pension freedom’ policy at risk.”

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