Pension freedom withdrawals break through £10bn

The latest pension freedom statistics showed 393,000 people took out £6.45bn from pension pots in the 2016 to 2017 tax year. 

That is an average of around £16,400 pulled out of pension pots per person.

This compared with the previous tax year's figures of £4.35bn.

However, the rate of increase in the amount of cash being taken from pensions has slowed down. 

In the first quarter of 2017 a total of 381,000 payments were made by 176,000 individuals, totalling £1.59bn. 

 This is only a slight increase on the last quarter of 2016's figure of £1.56bn.

Andrew Tully, pensions technical director at Retirement Advantage, said: "I doubt many Lamborghinis have been bought with the cash, but taking money out of a tax efficient pension to simply reinvest or put in a savings account, having paid tax on some or all of it, is not a sensible course of action.

"From the government’s point of view this is a tax bonanza. 

In the recent Budget, HM Treasury admitted the pension freedoms have raised far more tax than anticipated - £2.7bn between April 2015 and April 2017 compared to their original estimate of £0.9bn. 

"Paying tax on withdrawals was predicted to act as a natural brake on retirees withdrawing too much too soon, but this clearly hasn’t been the case."

Tom McPhail, director of policy at Bristol-based Hargreaves Lansdown, was more upbeat about investor behaviour.

He said:  "The retirement income market appears to have found equilibrium and based on the latest data, investors' behaviour appears very sensible although we feel more qualitative research is needed in this area from the Financial Conduct Authority and the government."

Since April 2015, individuals aged 55 plus can access their defined contribution pension savings as they wish, subject to their marginal rate of income tax.

stephanie.hawthorne@ft.com