A record £2.3bn was withdrawn from pensions in the first quarter of the tax year, according to statistics from HMRC, the largest sum since pension freedoms was introduced in Britain.
Around 264,000 people withdrew an average £3,950 from their pensions between April and June. This figure highlights a significant increase from the total value of £1.7 billion of flexible payments made to 222,000 people in the first quarter of this year, the report shows.
Over the past year, some 375,000 people have withdrawn a total of £6.65bn.
Since the introduction of the freedoms in 2015, the number of payments made in a quarter has quadrupled from 121,000 to 574,000.
Overall, 3.7 million withdrawals have been made totalling £17.5 billion between April 2015 and June 2018.
“These figures are quite narrow in that they only cover taxable money withdrawn from pensions under the new rules – they don’t include the release of tax-free cash early in retirement which the Financial Conduct Authority has called ‘the new norm’, and tell us nothing about when the cash is being released and whether it is being used for retirement or other purposes.
“We need to remember that small pension pots can make all the difference to raise peoples’ monthly living standards. Our analysis shows it only takes a pension pot of around £14,000 to lift a single retiree, in receipt of State Benefits, above the Joseph Rowntree Foundation’s Minimum Income Standard, the lowest income people think provides an acceptable standard of living,” Stephen Lowe, group communications director at Just Group, said. (continues…)
Tom Selby, senior analyst at AJ Bell, added: “It’s hard to tell the extent to which such withdrawals are sustainable without a broader picture of individuals’ finances. Many will have seen the value of their drawdown pot boosted by the stockmarket bull run – the real test of the reforms will come when markets inevitably hit the skids.”
Jon Greer, head of retirement policy at Quilter commented: “Since 2015 the number of individuals has increased 214% while the number of payments has increased an astonishing 374%. This increase is no reason for alarm as people are not draining their retirement pots to pay for Rolls Royces and trips to the Caribbean. As time has gone by the number of payments has increased per person, with the value to each person declining.
“While these figures are encouraging it is not a sign that the industry and the regulator should be complacent. The new world has heralded an increase in vulnerable customers who go into drawdown without advice.”