Almost £33bn withdrawn since pension flexibility change in 2015

There was £2.2bn withdrawn from pensions flexibly in the final quarter of 2019, an 18% increase from £1.9bn withdrawn during the same quarter a year earlier, new statistics published by HMRC revealed.

The latest figures brought the total value of flexible withdrawals from pensions since flexibility changes introduced in 2015 to almost £33bn.

The final quarter of 2019 also saw 327,000 individuals withdraw from pensions, reflecting a 24% increase from 264,000 in the same quarter in 2018.

These statistics continued the lower number of individuals compared to the second quarter and reflected the seasonal pattern, according to HMRC, which indicated withdrawal numbers typically peak in the second quarter of a given year, as this coincides with the beginning of a new tax year.

AJ Bell senior analyst, Tom Selby, commented: “It’s taken nearly five years but we are finally getting an idea of what ‘normal’ looks like in a world where people can spend their pension pot as they wish from age 55.

“We know from FCA data that over 350,000 pension pots were fully withdrawn at the first time of access in 2018/19, potentially skewing the average per person withdrawal figures upwards. Nine in 10 of these total withdrawals were made by people with relatively small pots worth £30,000 or less.

“While it’s hard to draw firm conclusions about the pension freedoms without knowing people’s other assets, income sources and individual circumstances, nothing we have seen suggests savers are broadly behaving in anything but a responsible manner.”

HMRC’s latest release also showed the average amount withdrawn per individual in the final quarter of 2019 was £6,800 – falling 5% from £7,200 a year earlier.

Since reporting became mandatory in the second quarter of 2016, HMRC noted that average withdrawals had been falling steadily and consistently, with peaks in the second quarter of each year becoming a noticeable trend.

“As more people enter income drawdown you would expect to see the overall number and value of flexible payments increase, so it is not surprising that is what these figures show,” group communications director at Just Group, Stephen Lowe, added.

“What these figures don’t capture is the scale of pension withdrawal that aren’t flexible withdrawals, such as people taking pension money under small pot rules, or those taking take tax-free cash and move the rest into drawdown without 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 benefiting and who could be losing out.”

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