Talking Point  

Pension freedoms tax grab is 50% more than original estimate

"We are working with our partners, including Pension Wise, the regulators and pension firms, so that savers have the support they need to understand the options available to them."

But Gareth James, pension expert at Manchester-based investment services company AJ Bell, sounded a note of caution.

Mr James said: “It is important that the government carries out a more detailed analysis of how the pension freedoms are being used before any realistic assessment of their success can be made."

Andrew Tully, pensions technical director of Retirement Advantage, agreed that while it is great to see people using the new pension freedoms these overall numbers masked some emerging and concerning trends.

He said: "Many more people are using drawdown to access their pensions, with significantly lower average values and at much younger ages. 

"This may be fine if many of these people are simply taking a tax-free lump sum, or accessing a small amount of their pension. 

"But given many people will live to a ripe old age, starting to dip into their pension at age 55 and 60 may well bring its own challenges later in life.

‘With more people in drawdown having smaller pots, first accessing their pension at younger ages, and possibly having a lower capacity for loss than traditional drawdown customers, ongoing reviews of the suitability of drawdown become ever more relevant and important."

Peter Bradshaw, national account director of Selectapension, said there is a risk that those drawing too heavily on their retirement pots could run out of money, especially as the HMRC figures appeared to indicate that people with smaller pots took advantage of the freedoms in the last three months of 2016.

He said: “This is why advice and careful planning is crucial for ‘generation freedom’ retirees today. Online planning tools can enable advisers to regularly review their clients’ arrangements to ensure their pots last as long as they do.”