Pensioners' appetite for withdrawals jumps 10%

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Pensioners' appetite for withdrawals jumps 10%

Flexible withdrawals from retirement funds as a result of pension freedoms have grown to a total of £17.5bn since the reforms were implemented in April 2015.

Figures from HM Revenue & Customs (HMRC) out today (27 April) show £1.7bn was withdrawn in the first quarter of this year, representing an upswing of 10 per cent on the total accumulated figure.

A total of  500,000 flexible payments were made in the quarter to 222,000 people with an average withdrawal sum of  £7,644, up marginally on last quarter but significantly lower than all previous quarters.

The Financial Conduct Authority (FCA) is currently probing the outcomes and consequences of the pension freedom reforms and is expected to focus on sustainability of withdrawals and consumer engagement in its upcoming report.

MPs said in their report on the freedoms, which was published earlier this month, there was danger in consumers’ lack of access to advice and savers needed more support in both accumulation and decumulation.

As a remedy they proposed a new form of standardised drawdown, which is a measure also previously considered by the FCA.

But secretary of state for pensions Guy Opperman told insurers at the Association of British Insurers (ABI) conference yesterday (26 April) the freedoms were a success and providers should do more to deliver this message to consumers.

Stephen Lowe, group communications director at retirement specialist Just Group, said the latest figures were the tip of the pension withdrawal iceberg and needed to be treated with caution.

He said: “These are a very specific set of figures that don’t reflect the bigger picture. 

“They only cover taxable money withdrawn from pensions under the new rules. 

“We know from other sources that the over 55s are taking large amounts of tax-free cash using flexi-access drawdown which is not included in the data reported, and nor is the tax-free cash element of UFPLS.”

Mr Lowe pointed to a lack of financial capability among large parts of the population and said he was disappointed the government had chosen not to include opt-out default guidance in the Financial Guidance and Claims Bill which is now reaching its final stages.

He said: “All the evidence suggests large numbers could benefit by receiving help to make better informed decisions when making crucial choices in how to use their pension savings and so they don’t make uninformed decisions they may end up regretting in later life."

Tom Selby, senior analyst at AJ Bell and Jon Greer, head of retirement policy at Old Mutual Wealth, agreed all eyes were on the FCA’s retirement outcomes paper.

Mr Selby said: “Our own research suggests many savers lack knowledge about the decisions they are taking at retirement. This must now become the central focus for both policymakers and the wider retirement income sector.”

Mr Greer said: “HMRC’s numbers show that people are beginning to grasp the power of freedoms. Since 2015 they are withdrawing significantly less per payment and increasing the frequency of the withdrawals. But there is still a vast knowledge gap surrounding pension freedoms and pensions in general.

“Boosting engagement and tackling the implications of non-advised drawdown are likely to be a key components of the regulator’s final report and the findings of its Retirement Outcomes Review, which is due imminently.” 

carmen.reichman@ft.com