HMRC reported today that £2.5bn was withdrawn from pensions flexibly in 1Q2020, a 19% increase from £2.1bn YoY. The total value of flexible withdrawals from pensions since flexibility changes in 2015 has now exceeded £35bn, the UK tax office said.
1Q2020 saw 348,000 individuals withdraw from pensions, a 23% increase from 284,000 in the same quarter of the previous year. There has also been an increase in the number of individuals withdrawing compared to the previous quarter 4Q2019 (327,000) - which reflects normal seasonal patterns.
Withdrawal numbers typically rise in 1Q, before peaking in 2Q, as this coincides with the beginning of a new tax year. This seasonality comes as some individuals access their pension over a number of years and often use the flexibility to withdraw funds at the beginning of the tax year.
Flexible access is likely to make pensions seem a more tempting solution in times of financial stress. Research carried out for the financial regulator has found that many people who accessed pension money preferred to do that even where they had access to other cash savings."
HMRC said the average amount withdrawn per individual in Q1 2020 was £7,100, falling by 3% from £7,300 in 1Q2019. Since reporting became mandatory in 2016, average withdrawals have been falling steadily and consistently, with peaks in the second quarter of each year becoming a noticeable trend.
Tom Selby, senior analyst at AJ Bell, said: "While the latest figures show total pension freedoms withdrawals continued to march higher to £35 billion, average per person withdrawals dropped from £7,300 in 1Q2019 to £7,100 this year.
"In fact, average per person withdrawals have fallen steadily since April 2015, suggesting people are generally using the reforms sensibly to take a steady income rather than splurging their hard-earned retirement pot in one go.
"It's worth noting the 1Q2020 figures mostly relate to the months before lockdown hit, and so are unlikely to capture any substantive shift in behaviour resulting from covid-19. Given the dramatic impact the pandemic has had on markets and people's incomes, it will inevitably drive the pension access decisions many people make in 2Q2020 and beyond.
Ian Browne, retirement expert at Quilter: "It is normal to see an increase in the number of people withdrawing from their pensions in the first quarter of the year as it edges toward the new tax year. In the first quarter of the new decade we have seen a substantial 18% increase in the amount withdrawn, bringing the total to over £35bn.
"However, even for normal trends the increase is substantially more than we have seen in the past. For instance from Q4 2018 to Q1 2019 we saw only an 8.4% increase in the amount withdrawn," Browne added.
"It may be volumes increased as people, nervous about stock market volatility or covid-19 in general started withdrawing more money. Next quarter's figures should further illuminate the picture and in fact we could see the numbers go either way. People may withdraw less from their pensions as their expenses have declined or we may see that people are tapping into their pensions more as they are looking to fill a gap left due to to being furloughed or some other unforeseen circumstances. This combined with the recent negative investment performance can wreak havoc on a pension.
"It is vital if you do decide to use your pension more than previously planned that you think about the long-term consequences. It is not just that sum that you won't have later on down the line, compound interest means the growth of your pot will also deplete. Getting trusted financial advice is crucial to ensure your actions today don't adversely impact your later retirement.
Stephen Lowe, group communications director at Just Group, said: "Only the latter part of this quarterly period covers the covid-19 lockdown, but it will be interesting to compare this quarter's figures with the next to see if there is a spike in pension access."
Lowe added: "Flexible access is likely to make pensions seem a more tempting solution in times of financial stress. Research carried out for the financial regulator has found that many people who accessed pension money preferred to do that even where they had access to other cash savings.
"Using pensions for emergency funds means less retirement income later and it can also restrict a saver's ability to refill their pension fund if they become subject to the strict Money Purchase Annual Allowance rules that limit annual contributions receiving tax relief to just £4,000 a year.