Latest HMRC figures show that more than half a million people withdrewmoney from their pension fund last year – the highest number since pension freedom rules were introduced.
According to HMRC 539,000 accessed their pension during the 2018/19 tax year, withdrawing funds worth £8.18bn.
The figures also show that the total value of payments in the last quarter – £2.06bn – is just shy of the highest value recorded. In the second quarter of 2018, £2.27bn was withdrawn.
Since pension freedom rules were introduced four years ago over 1.1m people have taken flexible payments, totalling £25.62bn.
However, pension experts point out that the figures also show that the average value of these withdrawals has fallen over this four year period, allaying fears that many are using their pension pots as a cash machine — and risk exhausting their retirement funds.
The HMRC figures show that the average flexible withdrawal in the first year of pension freedoms was £8,430.This fell to £3,713 for 2017/18 and has fallen again to £3,358 in 2018/19.
Aegon’s pension director Steven Cameron says: “The average amount being withdrawn has fallen year on year since inception, suggesting individuals are exercising restraint over how much to take out.”
He adds: “This is encouraging as with greater flexibility comes greater responsibility and the freedoms have also introduced an increased risk.”
However, there are concerns that many are not seeking advice before making these pension withdrawals.
Canada Life technical director Andrew Tully says: “Pensions continue to be treated as cash machines with the latest data showing a record amount withdrawn in the last tax year, up over £1.5bn from the 17/18 tax year.
“While this behaviour may not be cause for concern just yet, our research suggests only a third of people seek advice before flexibly accessing their pension. This can leave consumers exposed to a new set of risks including paying too much tax than necessary on withdrawals, or leaving the money languishing in low or near zero paying deposit accounts.”
This set of data also shows — for the first time — how many people are becoming subject to the complex Money Purchase Annual Allowance rules, that place onerous restrictions on their future pension saving.
Just Group’s communications director Stephen Lowe says: “We can see from the figures that in the opening three months of this year, 69,000 people took their first flexible payment from a pension.
This is the first time we have some visibility over the number of new people taking a flexibility payment on a quarterly basis. It’s an important number because it reveals how many are becoming subject to the Money Purchase Annual Allowance rules that restrict future pension saving to £4,000 a year.
“We know from Financial Conduct Authority data that 55% of people accessing pensions are doing so at the age of 55 and many of them will have a decade or more of restricted pension savings ahead of them.
“The 69,000 people in the last quarter is about the same as the long-term quarterly average since the reforms in 2015. That suggests there is steady demand to take a flexible payment rather than a slowing down after an initial rush.”
He points out that these figures do not sure the full amount being withdrawn from pension funds. These figures exclude those taking just the tax-free cash lump sum, or those accessing pensions under small pot rules.