The amount of cash being pulled out of pensions reached its highest level in the second quarter of 2017 since the 2015 pension freedom reforms, HM Revenue & Customs has revealed.
Quarterly statistics published by HM Revenue & Customs today (26 July) showed £1.86bn was withdrawn in the second quarter of 2017.
In total £10.8bn has been withdrawn from pensions since the pension reforms were introduced in April 2015.
Average withdrawals per person were down to £9,300 in the second quarter of 2017 from £11,132 in the same period last year and from £18,571 in the first quarter the freedoms were available.
A total of 200,000 more people used the pension freedoms in the second quarter than in any previous three-month period.
Apart from a spike in the second quarter of 2015 – the first period when pension freedoms were made available – the number of people using the freedoms each quarter has been gradually increasing since they were introduced.
Sir Steve Webb, former pensions minister and director of policy at Royal London, said: “'These figures show that more and more people every quarter are taking advantage of the new pension freedoms.
“From under 100,000 in the second quarter of 2015, the number has more than doubled in two years.
“Any future government would find it politically impossible to reverse this policy which is now a significant part of the retirement planning of large numbers of people.
“The priority for regulators must be to ensure that people are given the right guidance and advice to make best use of these freedoms.”
The amount of money being withdrawn has gone through peaks and troughs – with the previous record in the second quarter of 2016 being £1.77bn – but has been steadily increasing since the third quarter of 2016.
Earlier this month the Financial Conduct Authority published a paper into retirement outcomes which exposed a number of failings following the pension reforms.
These included consumers who accessed their pots early without taking advice typically following the “path of least resistance”, accepting drawdown from their current pension provider without shopping around.
It also found that more than half (52 per cent) of fully withdrawn pots were not spent but were moved into other savings or investments, including cash Isas.
Meanwhile providers were continuing to withdraw from the open annuity market which could bring a risk of weakened competition over time.
Stephen Lowe, group communications director at Just, said the HMRC figures back up the FCA's statement that taking pension money early has become the ‘new norm’.
Mr Lowe said: “We still lack evidence to know whether this level of withdrawal is healthy or should be worrying.
"The FCA’s research found many people who thought they were doing the right thing by taking pension money had a ‘penny drop’ moment and questioned their decision when confronted with facts about life expectancy and the size of fund needed to deliver even a basic retirement income.
“The FCA noted that information delivered face-to-face was likely to be most effective at preventing people from acting first and thinking later.
"There is a strong case for defaulting people into impartial free guidance unless they specifically opt out, particularly where it is delivered through personal interaction with a specialist rather than just as a leaflet or checklist.”
damian.fantato@ft.com
