PensionsNov 26 2015

Pension withdrawals could be up to £4.7bn

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Pension withdrawals could be up to £4.7bn

It is still unclear how much has been paid out since the pension freedoms have come into play, according to differing reports from HM Revenue & Customs (HMRC) and the Association of British Insurers (ABI).

HMRC believes £2.72bn in payments has been made to 146,000 individuals in Q2 and Q3 this year. However, data from the ABI shows £4.7bn has been withdrawn since April. It believes smaller pots are generally taken as cash, and larger pots are still being used to access retirement income.

Data from Partnership looks at the average pot size of 2,500 clients who took tax-free cash with the group rather than their ceding provider. The county with the highest pot size is Essex, with an average £125,478. The county took out £29,285 of tax-free cash on average amounting to 23.3 per cent of the pot. The size of pot is in stark contrast to Shropshire, which saw the smallest total pot size, of £44,336 – the county took out 25.2 per cent tax-free (the figure appears higher than 25 per cent due to averages).

The data also shows the average number of pots held. All but five counties have two (Durham, Northumberland, Shropshire, South Yorkshire and Staffordshire have one), and of those five, all took out more than 24.1 per cent tax-free income. As a percentage, pensioners in Northumberland have taken the highest amount of tax-free cash (25.4 per cent), while West Sussex took the lowest (20.5 per cent). When looking at the percentages, in Table 1, there appears to be no correlation between the amount taken out and the total pot size.

Figures are also available for the average pot size and tax-free cash withdrawals for England, Scotland Wales and Northern Ireland as a whole, as seen in Chart 1. England has the largest average pot size (£91,175) followed by Wales (£87,896), but it is Scottish pensioners who withdrew the highest amount from their pots (24.3 per cent).

The freedoms have been met with debate. Andrew Pennie, marketing director at Intelligent Pensions, said he is still positive but the industry must engage and increase awareness. “There is a lot of misunderstanding and poor decisions,” he said. He added the most important aspect is the misconception on the cost of advice.

ABI data shows that people are returning to the annuity market. Sales have seen the first quarter-on-quarter increase for the past three years, with 22,380 sold (worth £1.17bn in Q3 this year compared with 18,200 worth £990m in Q2). Sales such as this bode well for 2017 when the secondary annuity market will come into action. For more on that market, see MM’s December cover story here.