The average amount withdrawn from pensions as part of the pension freedoms has dropped to a new low of £7,596, latest official figures show.
According to HM Revenue & Customs (HMRC) a total of £1.5bn was paid out as people took advantage of access to their entire retirement nest egg via pensions freedoms in the fourth quarter of the year.
HMRC said 198,000 people withdrew the money, putting the average per person withdrawal figure at its lowest level since the freedoms were introduced in April 2015. This is down 21 per cent on the £9,630 average of the same period last year.
The total payment was the lowest amount since Q2 2016, when payments reached a high of £1.77bn and was down 3.5 per cent on Q4 2016.
In total almost £16bn has been withdrawn from pensions since the freedoms launched in April 2015, HMRC’s data showed.
Tom Selby, senior analyst at AJ Bell, said the figures showed there was no clear evidence of savers splurging their pension pots.
He said: “Average withdrawals per quarter continue their downward trajectory, hitting a new low of £7,596 – more than £2,000 less than the figure recorded in Q4 2016.
“While this is not in itself evidence that savers aren’t at risk of making unsustainable withdrawals from their pensions, it equally isn’t a smoking gun requiring emergency regulatory or government intervention.”
Former pensions minister, now director of policy at Royal London, Steve Webb, said the figures showed withdrawals under pension freedoms were settling down to a steady level.
He said: “Roughly 200,000 people are using the freedoms each quarter and are withdrawing a steady £1.5bn per quarter.
“This is very much the new normal and suggests that a significant number of those at or in retirement continue to value the flexibility given by the new legislation.”
But Andrew Tully, pensions technical director at Retirement Advantage, said the figures also showed the ‘dash for cash’ was not slowing as “significant sums continue to be withdrawn from pensions”.
He said: “A trend is emerging of pension pots being withdrawn fully, but there is insufficient information to tell us why.
“It could be that people are reacting to uncertainties in the economic environment, or are simply worried about the legislative goalposts changing again, or they might just want their money.”
Sustainability of withdrawals are likely to be a key focus in the regulator’s Retirement Outcomes Review later this year.
Mr Selby said policymakers should focus on boosting access to advice and guidance as well as simplifying and improving communications sent to customers.
He said: “Our own research suggests many savers are entering drawdown simply to take their tax-free cash, without thinking properly about where their money is invested or how and when they are going to draw an income.
“Boosting engagement therefore needs to be a priority for policymakers across the Financial Conduct Authority, Treasury, the Department for Work and Pensions and The Pensions Regulator.”
A report published by the Office for Budget Responsibility (OBR) in November showed the Treasury estimated to take several hundred millions in tax from the freedoms, albeit figures were revised down by £0.5bn.
The OBR had initially estimated a tax take of about £0.3bn in 2015-16 and £0.6bn in 2016-17. But in a report in March it revised its figures up to an estimated tax take of £1.6bn in 2017-18, £1.1bn in 2016-17 and £1.5bn in 2015-16.
Then, in November, it said tax receipts would in effect be £500m lower than its March forecast because people had been drawing down their pensions at a faster rate than it had previously assumed.
Mr Tully said: “The freedoms have certainly generated a welcome windfall for the Treasury but it’s clear tax has not been the natural brake to prevent people withdrawing large sums before retirement.
“We know people are accessing their pensions for the first time at younger ages, certainly before they are due to retire. And from our research we know they are spending the cash on making home improvements, going on holidays, paying off debts and also saving the money outside of the pension.”
Nathan Long, senior pension analyst at Hargreaves Lansdown, said there was evidence retirees had not spent their cash on Christmas shopping.
“Rather than use pensions to splurge on an extravagant Christmas, retirees have operated restraint when managing their pensions showing the new rules are bedding in nicely and the amount being withdrawn is stabilising,” he said.
He added: “The number of payments made has increased, but this could simply be a reflection of more and more people using drawdown for their income in retirement.
“The fact the rate of growth is slowing actually shows that the dash for cash is abating and retirees are facing up to managing their pension pot to provide for their life after work.”
carmen.reichman@ft.com
