Caution has been urged following the revelation that more than £9.2bn is being accessed by individuals taking advantage of the pension freedoms rule change.
Commenting on the latest Government data about the amount of money being accessed via the pension freedoms, Saga Investment Services and pension specialist Risk have both warned UK savers to be careful with the flexibility as it could have consequences, including income tax issues in some cases.
The UK Government announced the figures via a statement that highlighted that since April 2015, individuals aged 55 and over can access their defined contribution pension savings as they wish, subject to their marginal rate of income tax have accessed more than £9.2bn (see table below).
The number of flexible payments made from pensions, the number of individuals who have received a flexible payment that was reported to HMRC, has also grown every quarter, highlighting the popularity of the scheme.
Sally Merritt, head of product, Saga Investment Services, a joint venture between Saga, a provider of services to the UK’s over 50s, and Tilney Bestinvest, said: “These latest numbers clearly demonstrate the popularity of pension freedoms with the British public, with over half a million people now having made use of them since they were introduced in April 2015. The figures show that typically people are withdrawing small amounts from their pension with the average withdrawal being a little over £6,000.
“We would, however, continue to issue caution when it comes to withdrawing cash from your pension pot without taking expert advice first. Not only does taking money from their pension mean that people need to plan for an alternative source of income in retirement, but it could also lead to people getting a nasty surprise on their income tax bill – especially if they take it all in one go, rather than in phases over multiple tax years.
Merritt also pointe to the “perhaps lesser known issue” of pensions now being seen as “a much more attractive way” to pass on wealth to family members from an Inheritance Tax perspective than was previously the case.
“This means some people are finding it more tax efficient to release money from other sources before touching their pensions,” she said. “Ultimately, with increased choice comes increased complexity, and we would urge people to seek advice before taking action.
Stephen Lowe, group communications director at specialist financial services company Just, welcomed the “flexibility of modern pensions” as useful for people who need to access their money at earlier ages however he also recommended caution, particularly for those who plan to replenish their savings before they stop work.
‘In the dark’
“Our research shows that 4 in 10 people were forced to stop working full-time before they wanted to by factors like redundancy and ill health, meaning many people will not be able to continue saving for retirement as they had hoped,” said Lowe.
“We are now nearly two years into the new rules and, despite the official figures, we remain in the dark about how many of those taking pension cash lump sums are thinking about their long term financial security and how many are grabbing it to spend while they can. We need a lot more detail if we are going to identify and head off any future problems.’
Table: Quarterly statistics of flexible payments from pensions
Source: UK Government
Notes to the table:
- The numbers published for 2015-16 are not comprehensive as to manage optional for 2015-16 but compulsory from April 2016. The increase in reported payments seen in 2016 Q2 is expected to partly result from this.
- The data underpinning these figures comes from Real Time Information (RTI) reports submitted to HMRC. r) Revised
- Figures are rounded to the nearest 1,000.
2. Figures are rounded to the nearest £10 million.
3. The number of individuals for the year/year to date totals are less than the sum of the number of individuals from each quarter as some have taken payments in multiple quarters.
4. Quarterly figures may not sum to total due to rounding.