Figures published by the UK's HM Revenue and Customs (HMRC) today suggest more people may be using pensions as a flow of income rather than a chance to access big lump sums.
In 4Q2019, £2.2bn was withdrawn from pensions flexibly - a significant 18% increase from £1.9bn in 4Q2018. The total value of flexible withdrawals from pensions since flexibility changes in 2015 has reached almost £33bn. The total value of withdrawal payments for 2019 is £9.4bn.
Fully 327,000 people withdrew £2.2bn flexibly from their pensions in the final quarter of 2019. The average per person withdrawals were £6,800 in 4Q2019, a reduction of 5% from £7,200 in 4Q2018 and the lowest figure recorded so far.
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."
Today's figures prompted some to call on the government to review pension tax rules as rising numbers trigger the £4,000 money purchase annual allowance (MPAA).
Tom Selby, senior analyst at AJ Bell, said: "It's taken nearly 5 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.
"The average person withdrew under £7,000 flexibly during the latest quarter, a figure which has been trending downwards as more people take a steady income from their fund.
"We know from FCA data that over 350,000 pension pots were fully withdrawn at the first time of access in 2018/19, potentially skewing the average per person withdrawal figures upwards.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."
Also commenting on the figures, Stephen Lowe, group communications director at Just Group, said: "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.
"But they also show that the average number of payments taken each quarter has increased to 2.5 for the latest period, which is nearly one a month and the highest it has been since 2015. The average value of payment per individual has also fallen to its lowest level of £2,693. Pensions are a way to replace lost wages in retirement so a trend to smaller payments taken more regularly is positive.
"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. Figures from the Financial Conduct Authority for April 2018 to March 2019 show that two-thirds of people who enter drawdown are just taking the tax-free cash and no income, so won't show up on these HMRC figures.
"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."
Jamie Jenkins, head of global savings policy at Standard Life, commented: "As more and more people are brought into pension saving through automatic enrolment, it's natural that we see a rise in the overall withdrawals made from age 55. However, it's encouraging to see that the average amount people are taking out is reducing, suggesting people are thinking carefully about how to preserve their retirement savings.
"The Regulator remains rightly concerned that some people are holding money in cash savings over long periods, so it will be good to see the widespread adoption of investment pathways later this year. This will offer those who do not take advice a range of investment solutions to meet their objectives, helping to make investment choices much simpler as they enter into retirement."
Ian Browne, pensions expert at Quilter said: "Figures from HMRC tell a narrative around pensions freedoms that George Osborne would be happy with - it is working as it supposed to. While nearly £33bn has been withdraw from pensions thanks to pension flexibility, those withdrawals appear to be at a sustainable level. There are more people taking smaller withdrawals.
"Concerns that pension freedoms signaled the apocalypse of responsible retirement saving and income in the UK now seem over the top. However, it has not been a straight path for pension freedoms and we are still trying to combat the tsunami of challenges that this new era has presented."