Drawdown sales hit post-pension freedoms high

Drawdown sales hit post-pension freedoms high

Drawdown sales have reached their highest level since pension freedoms were introduced, according to data from HM Revenue & Customs.

The data from HMRC showed 42,700 drawdown plans were opened in the second quarter of 2017 compared to 13,800 annuity sales.

The number of people accessing flexible pension payments has increased by 25 per cent in Q3 2017, compared to the same period in the previous year, reaching 198,000 people.

Some 435,000 payments were made in the quarter, a record number since the taxman started collecting data and an increase of 34 per cent when compared to the third quarter of 2016.

The value of these payments reached £1.6bn in the three months ending in September, which is a small 3 per cent rise from the same period last year.

So far this tax year, the HMRC has registered £3.5bn in 838,000 flexible pension payments, taken by 398,000 individuals.

Stephen Lowe, group communications director at retirement specialist Just Group, the government is running a risk that pension freedoms rules are “exposing thousands of people every month to significant risks”.

He said: “Tens of thousands of people are withdrawing large cash sums and in many cases, all of their pension savings – but worryingly, they are making uninformed decisions which expose them to rogues and con men, as well as unnecessary tax charges.”

Research published by the Financial Conduct Authority earlier this year found more than one million defined contribution pension pots had been accessed since the reformed were introduced two years ago.

In most cases DC pots accessed were small (64 per cent were less than £30,000) compared with the value of the state pension (worth about £200,000). 

More than half (53 per cent) of pots accessed have been fully withdrawn.

But with the introduction of pension freedoms introduced in 2015, savers have been seeking to take advantage of the high transfer values of defined benefit schemes and to move their nest eggs into DC plans, where they can access them through income drawdown.

Rachel Vahey, product technical manager at Nucleus, said the steady increase in the number of times people are dipping into their pension pots "may raise concerns".

She said: “This may lead to the risk many withdraw funds when they have no immediate need of them, unnecessarily paying tax, and investing them in bank accounts or Isas.

“The challenge facing government, regulators, financial advisers and the industry is to help people understand when and how to take their pension savings, and to make good financial decisions to maintain their financial health throughout retirement.”

The Work and Pensions Select Committee is currently investigating whether the pension freedom reforms are working, after launching an inquiry last month.

Nathan Long, senior pension analyst at Hargreaves Lansdown, said HMRC's numbers were no surprise, since keeping a pension “invested whilst drawing either lump sums or a regular income continues to grow in popularity”.

He said these figures show that, on one hand, “pensions have never been more popular as retirees’ craving for control is met”.