Pension freedom withdrawals pass £30bn

Pedro Gonçalves
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Pension freedom withdrawals pass £30bn

Over £30bn has been flexibly withdrawn from pensions since the introduction of pension freedoms in 2015.

The latest figures from HMRC on flexible pension payments show that £2.4bn was withdrawn from pensions in the third quarter of 2019 by 327,000 individuals, a 21% increase from the £2bn that was taken out during the same period in 2018.

Pension freedom rules mean those aged over 55 no longer have to purchase an annuity to access their pension income but can instead enter drawdown or take a cash amount.

In this quarter, 327,000 individuals withdrew from pensions - up 27% from 258,000 in the same period of 2018.

People should think carefully before cashing in their pension pot"

The latest withdrawals statistics is a three percent decrease from 336,000 individuals in the second quarter of this year.

Figures show the average amount withdrawn per individual in this quarter of 2019 was £7,250.

This has fallen by five percent compared to last year - which stood at an average withdrawal of £7,600.

Royal London director of policy, Steve Webb, said that the new quarterly figures show that people are phasing their withdrawals to minimise the amount of tax they have to pay. Withdrawals peak after the start of the new tax year as individuals manage their withdrawals to avoid paying unnecessary tax by taking their money out in a larger lump in a single tax year.

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

"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."

Nathan Long, senior analyst at Hargreaves Lansdown, said: "New pensions rules came along in a hurry, but they are bedding down and for the most part working well. 

"With the beginning of tax year pension drain accounted for in the last quarter's figures, we see withdrawals in line with the on-going trend for drawing out less. 

"The real test of people's behaviour is when the stock market suffers some turbulence, a crash could cause panic among retirees and a dash to encash their pension savings."

HMRC has handed back almost £55m to savers who had overpaid tax on pension withdrawals in the past three months, the highest figure since drawdown rules were relaxed.

Figures released by HMRC for the period 1 July 2019 to 30 September 2019 show the department processed 10,379 P55 forms for flexibly accessed pension overpayments, along with 5,253 P53Z forms for small pension lump sums and 1,753 P50Z applications.

In total, the department returned £ 54,975,821 of overpaid tax during the quarter. Since pension freedoms, the total amount of ‘emergency tax' on withdrawals (which was subsequently repaid) now stands at £535m.

 

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